Al
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34108
DIGIMARC CORPORATION
(Exact name of registrant as specified in its charter)
Oregon |
| 26-2828185 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
94058500 SW Gemini Drive,Creekside Place, Beaverton, Oregon 97008
(Address of principal executive offices) (Zip Code)
(503) 469-4800
(Registrant’s telephone number, including area code)
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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
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Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
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Emerging growth company | ☐ |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 28, 2021,May 6, 2022, there were 16,930,46019,940,921 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
outstanding
Table of Contents
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Item 1. | 3 | |
| Consolidated Balance Sheets as of | 3 |
| Consolidated Statements of Operations and Comprehensive Loss for the three | 4 |
| Consolidated Statements of Shareholders’ Equity for the three | 5 |
| Consolidated Statements of Cash Flows for the | 6 |
| 7 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 6. |
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PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements. |
DIGIMARC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(UNAUDITED)
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
ASSETS |
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Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Cash and cash equivalents |
| $ | 21,358 |
|
| $ | 19,696 |
|
| $ | 3,228 |
|
| $ | 13,789 |
|
Marketable securities |
|
| 39,592 |
|
|
| 58,032 |
|
|
| 15,958 |
|
|
| 19,537 |
|
Trade accounts receivable, net |
|
| 4,590 |
|
|
| 3,907 |
|
|
| 5,934 |
|
|
| 6,368 |
|
Loan receivable from related party |
|
| 0 |
|
|
| 2,001 |
| ||||||||
Other current assets |
|
| 1,805 |
|
|
| 2,197 |
|
|
| 4,489 |
|
|
| 2,316 |
|
Total current assets |
|
| 67,345 |
|
|
| 83,832 |
|
|
| 29,609 |
|
|
| 44,011 |
|
Marketable securities |
|
| 157 |
|
|
| 0 |
|
|
| 5,709 |
|
|
| 8,292 |
|
Property and equipment, net |
|
| 3,082 |
|
|
| 3,272 |
|
|
| 2,922 |
|
|
| 2,875 |
|
Intangibles, net |
|
| 6,606 |
|
|
| 6,612 |
|
|
| 41,833 |
|
|
| 6,611 |
|
Goodwill |
|
| 1,114 |
|
|
| 1,114 |
|
|
| 6,412 |
|
|
| 1,114 |
|
Lease right of use assets |
|
| 5,746 |
|
|
| 1,300 |
| ||||||||
Other assets |
|
| 2,244 |
|
|
| 2,198 |
|
|
| 1,268 |
|
|
| 673 |
|
Total assets |
| $ | 80,548 |
|
| $ | 97,028 |
|
| $ | 93,499 |
|
| $ | 64,876 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and other accrued liabilities |
| $ | 4,428 |
|
| $ | 2,827 |
|
| $ | 10,875 |
|
| $ | 4,727 |
|
Note payable, current |
|
| 5,091 |
|
|
| 3,947 |
| ||||||||
Deferred revenue |
|
| 2,659 |
|
|
| 3,002 |
|
|
| 4,315 |
|
|
| 2,989 |
|
Total current liabilities |
|
| 12,178 |
|
|
| 9,776 |
|
|
| 15,190 |
|
|
| 7,716 |
|
Lease liability and other long-term liabilities |
|
| 3,128 |
|
|
| 2,295 |
| ||||||||
Note payable, long-term |
|
| 0 |
|
|
| 1,118 |
| ||||||||
Long-term lease liabilities |
|
| 6,267 |
|
|
| 1,028 |
| ||||||||
Other long-term liabilities |
|
| 519 |
|
|
| 752 |
| ||||||||
Total liabilities |
|
| 15,306 |
|
|
| 13,189 |
|
|
| 21,976 |
|
|
| 9,496 |
|
Commitments and contingencies (Note 14) |
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Shareholders’ equity: |
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Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at June 30, 2021 and December 31, 2020) |
|
| 50 |
|
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| 50 |
| ||||||||
Common stock (par value $0.001 per share, 50,000 authorized, 16,943 and 16,735 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively) |
|
| 17 |
|
|
| 17 |
| ||||||||
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at March 31, 2022 and December 31, 2021) |
|
| 50 |
|
|
| 50 |
| ||||||||
Common stock (par value $0.001 per share, 50,000 authorized, 17,687 and 16,940 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively) |
|
| 18 |
|
|
| 17 |
| ||||||||
Additional paid-in capital |
|
| 260,071 |
|
|
| 255,024 |
|
|
| 296,364 |
|
|
| 261,324 |
|
Accumulated deficit |
|
| (194,896 | ) |
|
| (171,252 | ) |
|
| (223,792 | ) |
|
| (206,011 | ) |
Accumulated other comprehensive loss |
|
| (1,117 | ) |
|
| 0 |
| ||||||||
Total shareholders’ equity |
|
| 65,242 |
|
|
| 83,839 |
|
|
| 71,523 |
|
|
| 55,380 |
|
Total liabilities and shareholders’ equity |
| $ | 80,548 |
|
| $ | 97,028 |
|
| $ | 93,499 |
|
| $ | 64,876 |
|
The accompanying notes are an integral part of these consolidated financial statementsstatements.
DIGIMARC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
(UNAUDITED)
|
| Three |
|
| Three |
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
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| Ended |
| ||||||
|
| June 30, |
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| June 30, |
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| June 30, |
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| June 30, |
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| March 31, |
|
| March 31, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2022 |
|
| 2021 |
| ||||||
Revenue: |
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Service |
| $ | 3,791 |
|
| $ | 3,892 |
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| $ | 7,575 |
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| $ | 7,630 |
|
| $ | 3,620 |
|
| $ | 3,784 |
|
Subscription |
|
| 2,487 |
|
|
| 2,605 |
|
|
| 5,403 |
|
|
| 5,056 |
|
|
| 3,791 |
|
|
| 2,916 |
|
Total revenue |
|
| 6,278 |
|
|
| 6,497 |
|
|
| 12,978 |
|
|
| 12,686 |
|
|
| 7,411 |
|
|
| 6,700 |
|
Cost of revenue: |
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Service |
|
| 1,515 |
|
|
| 1,601 |
|
|
| 3,085 |
|
|
| 3,285 |
| ||||||||
Subscription |
|
| 534 |
|
|
| 512 |
|
|
| 1,325 |
|
|
| 1,026 |
| ||||||||
Service (1) |
|
| 1,831 |
|
|
| 1,570 |
| ||||||||||||||||
Subscription (1) |
|
| 1,042 |
|
|
| 791 |
| ||||||||||||||||
Amortization expense on acquired intangible assets |
|
| 1,194 |
|
|
| 0 |
| ||||||||||||||||
Total cost of revenue |
|
| 2,049 |
|
|
| 2,113 |
|
|
| 4,410 |
|
|
| 4,311 |
|
|
| 4,067 |
|
|
| 2,361 |
|
Gross profit |
|
| 4,229 |
|
|
| 4,384 |
|
|
| 8,568 |
|
|
| 8,375 |
|
|
| 3,344 |
|
|
| 4,339 |
|
Operating expenses: |
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Sales and marketing |
|
| 6,277 |
|
|
| 4,633 |
|
|
| 11,218 |
|
|
| 9,879 |
|
|
| 7,945 |
|
|
| 4,941 |
|
Research, development and engineering |
|
| 4,213 |
|
|
| 4,208 |
|
|
| 8,344 |
|
|
| 8,641 |
|
|
| 6,091 |
|
|
| 4,131 |
|
General and administrative |
|
| 9,175 |
|
|
| 3,081 |
|
|
| 12,668 |
|
|
| 6,448 |
|
|
| 6,408 |
|
|
| 3,493 |
|
Amortization expense on acquired intangible assets |
|
| 342 |
|
|
| 0 |
| ||||||||||||||||
Impairment of lease right of use assets and leasehold improvements |
|
| 574 |
|
|
| 0 |
| ||||||||||||||||
Total operating expenses |
|
| 19,665 |
|
|
| 11,922 |
|
|
| 32,230 |
|
|
| 24,968 |
|
|
| 21,360 |
|
|
| 12,565 |
|
Operating loss |
|
| (15,436 | ) |
|
| (7,538 | ) |
|
| (23,662 | ) |
|
| (16,593 | ) |
|
| (18,016 | ) |
|
| (8,226 | ) |
Other income, net |
|
| 18 |
|
|
| 79 |
|
|
| 28 |
|
|
| 221 |
| ||||||||
Other income (loss), net |
|
| (4 | ) |
|
| 10 |
| ||||||||||||||||
Loss before income taxes |
|
| (15,418 | ) |
|
| (7,459 | ) |
|
| (23,634 | ) |
|
| (16,372 | ) |
|
| (18,020 | ) |
|
| (8,216 | ) |
Benefit (provision) for income taxes |
|
| (4 | ) |
|
| (2 | ) |
|
| (10 | ) |
|
| 3 |
|
|
| 239 |
|
|
| (6 | ) |
Net loss |
| $ | (15,422 | ) |
| $ | (7,461 | ) |
| $ | (23,644 | ) |
| $ | (16,369 | ) |
| $ | (17,781 | ) |
| $ | (8,222 | ) |
Earnings (loss) per common share: |
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Loss per common share: |
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Loss per common share — basic |
| $ | (0.94 | ) |
| $ | (0.62 | ) |
| $ | (1.44 | ) |
| $ | (1.36 | ) |
| $ | (1.03 | ) |
| $ | (0.50 | ) |
Loss per common share — diluted |
| $ | (0.94 | ) |
| $ | (0.62 | ) |
| $ | (1.44 | ) |
| $ | (1.36 | ) |
| $ | (1.03 | ) |
| $ | (0.50 | ) |
Weighted average common shares outstanding — basic |
|
| 16,430 |
|
|
| 12,108 |
|
|
| 16,382 |
|
|
| 12,073 |
|
|
| 17,344 |
|
|
| 16,333 |
|
Weighted average common shares outstanding — diluted |
|
| 16,430 |
|
|
| 12,108 |
|
|
| 16,382 |
|
|
| 12,073 |
|
|
| 17,344 |
|
|
| 16,333 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Comprehensive loss: |
|
|
|
|
|
|
|
| ||||||||||||||||
Unrealized loss on marketable securities, net of tax of $0 |
| $ | (198 | ) |
| $ | 0 |
| ||||||||||||||||
Foreign currency translation adjustment, net of tax of $0 |
|
| (919 | ) |
|
| 0 |
| ||||||||||||||||
Other comprehensive loss |
| $ | (1,117 | ) |
| $ | 0 |
| ||||||||||||||||
Net loss |
|
| (17,781 | ) |
|
| (8,222 | ) | ||||||||||||||||
Comprehensive loss |
| $ | (18,898 | ) |
| $ | (8,222 | ) | ||||||||||||||||
(1) Cost of revenue for Service and Subscription excludes amortization expense on acquired intangible assets. |
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The accompanying notes are an integral part of these consolidated financial statementsstatements.
DIGIMARC CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(UNAUDITED)
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| Additional |
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| Total |
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| Accumulated |
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| |||
|
| Preferred Stock |
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Shareholders' |
|
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|
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| Additional |
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| Other |
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| Total |
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
|
| Preferred Stock |
|
| Common Stock |
|
| Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Shareholders' |
| |||||||||||||||||||||
Three months ended June 30, 2021: |
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BALANCE AT MARCH 31, 2021 |
|
| 10 |
|
| $ | 50 |
|
|
| 16,850 |
|
| $ | 17 |
|
| $ | 256,200 |
|
| $ | (179,474 | ) |
| $ | 76,793 |
| ||||||||||||||||||||||||||||||||
Exercise of stock options |
|
| 0 |
|
|
| 0 |
|
|
| 70 |
|
|
| 0 |
|
|
| 1,075 |
|
|
| 0 |
|
|
| 1,075 |
| ||||||||||||||||||||||||||||||||
Issuance of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| 44 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||||||||||||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2021 |
|
| 10 |
|
| $ | 50 |
|
|
| 16,940 |
|
| $ | 17 |
|
| $ | 261,324 |
|
| $ | (206,011 | ) |
| $ | 0 |
|
| $ | 55,380 |
| ||||||||||||||||||||||||||||
Issuance of common stock for acquisition |
|
| — |
|
|
| 0 |
|
|
| 772 |
|
|
| 1 |
|
|
| 31,518 |
|
|
| 0 |
|
|
| 0 |
|
|
| 31,519 |
| ||||||||||||||||||||||||||||
Issuance of warrants for acquisition |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 1,601 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,601 |
| ||||||||||||||||||||||||||||
Vesting of restricted stock units |
|
| 0 |
|
|
| 0 |
|
|
| 112 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Forfeiture of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| (16 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (8 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Purchase and retirement of common stock |
|
| 0 |
|
|
| 0 |
|
|
| (117 | ) |
|
| 0 |
|
|
| (3,979 | ) |
|
| 0 |
|
|
| (3,979 | ) | ||||||||||||||||||||||||||||||||
Purchase of common stock |
|
| — |
|
|
| 0 |
|
|
| (18 | ) |
|
| 0 |
|
|
| (583 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (583 | ) | ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 2,504 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,504 |
| ||||||||||||||||||||||||||||
Unrealized loss on marketable securities |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (198 | ) |
|
| (198 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (919 | ) |
|
| (919 | ) | ||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (17,781 | ) |
|
| 0 |
|
|
| (17,781 | ) | ||||||||||||||||||||||||||||
BALANCE AT MARCH 31, 2022 |
|
| 10 |
|
| $ | 50 |
|
|
| 17,687 |
|
| $ | 18 |
|
| $ | 296,364 |
|
| $ | (223,792 | ) |
| $ | (1,117 | ) |
| $ | 71,523 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2020 |
|
| 10 |
|
| $ | 50 |
|
|
| 16,735 |
|
| $ | 17 |
|
| $ | 255,024 |
|
| $ | (171,252 | ) |
| $ | 0 |
|
| $ | 83,839 |
| ||||||||||||||||||||||||||||
Issuance of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| 154 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||
Forfeiture of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| (19 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||
Purchase of common stock |
|
| — |
|
|
| 0 |
|
|
| (20 | ) |
|
| 0 |
|
|
| (870 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (870 | ) | ||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 6,775 |
|
|
| 0 |
|
|
| 6,775 |
|
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 2,046 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,046 |
|
Net loss |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (15,422 | ) |
|
| (15,422 | ) |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (8,222 | ) |
|
| 0 |
|
|
| (8,222 | ) |
BALANCE AT JUNE 30, 2021 |
|
| 10 |
|
| $ | 50 |
|
|
| 16,943 |
|
| $ | 17 |
|
| $ | 260,071 |
|
| $ | (194,896 | ) |
| $ | 65,242 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Three months ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
BALANCE AT MARCH 31, 2020 |
|
| 10 |
|
| $ | 50 |
|
|
| 12,645 |
|
| $ | 13 |
|
| $ | 190,303 |
|
| $ | (147,623 | ) |
| $ | 42,743 |
| ||||||||||||||||||||||||||||||||
Issuance of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| 43 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
Forfeiture of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| (4 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| 0 |
|
|
| 0 |
|
|
| (25 | ) |
|
| 0 |
|
|
| (382 | ) |
|
| 0 |
|
|
| (382 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 2,377 |
|
|
| 0 |
|
|
| 2,377 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (7,461 | ) |
|
| (7,461 | ) | ||||||||||||||||||||||||||||||||
BALANCE AT JUNE 30, 2020 |
|
| 10 |
|
| $ | 50 |
|
|
| 12,659 |
|
| $ | 13 |
|
| $ | 192,298 |
|
| $ | (155,084 | ) |
| $ | 37,277 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Six months ended June 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2020 |
|
| 10 |
|
| $ | 50 |
|
|
| 16,735 |
|
| $ | 17 |
|
| $ | 255,024 |
|
| $ | (171,252 | ) |
| $ | 83,839 |
| ||||||||||||||||||||||||||||||||
Exercise of stock options |
|
| 0 |
|
|
| 0 |
|
|
| 70 |
|
|
| 0 |
|
|
| 1,075 |
|
|
| 0 |
|
|
| 1,075 |
| ||||||||||||||||||||||||||||||||
Issuance of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| 198 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
Vesting of restricted stock units |
|
| 0 |
|
|
| 0 |
|
|
| 112 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
Forfeiture of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| (35 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| 0 |
|
|
| 0 |
|
|
| (137 | ) |
|
| 0 |
|
|
| (4,849 | ) |
|
| 0 |
|
|
| (4,849 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 8,821 |
|
|
| 0 |
|
|
| 8,821 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (23,644 | ) |
|
| (23,644 | ) | ||||||||||||||||||||||||||||||||
BALANCE AT JUNE 30, 2021 |
|
| 10 |
|
| $ | 50 |
|
|
| 16,943 |
|
| $ | 17 |
|
| $ | 260,071 |
|
| $ | (194,896 | ) |
| $ | 65,242 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Six months ended June 30, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2019 |
|
| 10 |
|
| $ | 50 |
|
|
| 12,446 |
|
| $ | 12 |
|
| $ | 188,103 |
|
| $ | (138,715 | ) |
| $ | 49,450 |
| ||||||||||||||||||||||||||||||||
Issuance of common stock, net of issuance costs |
|
| 0 |
|
|
| 0 |
|
|
| 28 |
|
|
| 1 |
|
|
| 573 |
|
|
| 0 |
|
|
| 574 |
| ||||||||||||||||||||||||||||||||
Exercise of stock options |
|
| 0 |
|
|
| 0 |
|
|
| 8 |
|
|
| 0 |
|
|
| 135 |
|
|
| 0 |
|
|
| 135 |
| ||||||||||||||||||||||||||||||||
Issuance of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| 229 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
Forfeiture of restricted common stock |
|
| 0 |
|
|
| 0 |
|
|
| (4 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
| ||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| 0 |
|
|
| 0 |
|
|
| (48 | ) |
|
| 0 |
|
|
| (1,120 | ) |
|
| 0 |
|
|
| (1,120 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 4,607 |
|
|
| 0 |
|
|
| 4,607 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| 0 |
|
|
| 0 |
|
|
| (16,369 | ) |
|
| (16,369 | ) | ||||||||||||||||||||||||||||||||
BALANCE AT JUNE 30, 2020 |
|
| 10 |
|
| $ | 50 |
|
|
| 12,659 |
|
| $ | 13 |
|
| $ | 192,298 |
|
| $ | (155,084 | ) |
| $ | 37,277 |
| ||||||||||||||||||||||||||||||||
BALANCE AT MARCH 31, 2021 |
|
| 10 |
|
| $ | 50 |
|
|
| 16,850 |
|
| $ | 17 |
|
| $ | 256,200 |
|
| $ | (179,474 | ) |
| $ | 0 |
|
| $ | 76,793 |
|
The accompanying notes are an integral part of these consolidated financial statementsstatements.
DIGIMARC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||
|
| June 30, |
|
| June 30, |
|
| March 31, |
|
| March 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (23,644 | ) |
| $ | (16,369 | ) |
| $ | (17,781 | ) |
| $ | (8,222 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and write-off of property and equipment |
|
| 717 |
|
|
| 745 |
| ||||||||
Amortization and write-off of intangibles |
|
| 345 |
|
|
| 431 |
| ||||||||
Amortization of right of use assets under operating leases |
|
| 240 |
|
|
| 233 |
| ||||||||
Amortization of net premiums and (discounts) on marketable securities |
|
| (498 | ) |
|
| 96 |
| ||||||||
Depreciation and write-off of property and equipment |
|
| 390 |
|
|
| 363 |
| ||||||||
Amortization of acquired intangible assets |
|
| 1,536 |
|
|
| 0 |
| ||||||||
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 |
|
| 8,747 |
|
|
| 4,522 |
|
|
| 2,468 |
|
|
| 2,010 |
|
Impairment of lease right of use assets and leasehold improvements |
|
| 574 |
|
|
| 0 |
| ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| (950 | ) |
|
| 445 |
|
|
| 1,731 |
|
|
| (612 | ) |
Other current assets |
|
| 392 |
|
|
| 361 |
|
|
| (17 | ) |
|
| 219 |
|
Other assets |
|
| (19 | ) |
|
| 85 |
|
|
| (601 | ) |
|
| (44 | ) |
Accounts payable and other accrued liabilities |
|
| 1,859 |
|
|
| (155 | ) |
|
| 219 |
|
|
| 501 |
|
Deferred revenue |
|
| (331 | ) |
|
| (500 | ) |
|
| (423 | ) |
|
| (55 | ) |
Lease liability and other long-term liabilities |
|
| 656 |
|
|
| 24 |
|
|
| (420 | ) |
|
| (177 | ) |
Net cash used in operating activities |
|
| (12,486 | ) |
|
| (10,082 | ) |
|
| (11,856 | ) |
|
| (5,988 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisition |
|
| (3,512 | ) |
|
| 0 |
| ||||||||
Purchase of property and equipment |
|
| (569 | ) |
|
| (456 | ) |
|
| (414 | ) |
|
| (317 | ) |
Capitalized patent costs |
|
| (290 | ) |
|
| (311 | ) |
|
| (119 | ) |
|
| (159 | ) |
Maturity of marketable securities |
|
| 49,722 |
|
|
| 26,439 |
| ||||||||
Purchase of marketable securities |
|
| (30,941 | ) |
|
| (19,490 | ) | ||||||||
Net cash provided by investing activities |
|
| 17,922 |
|
|
| 6,182 |
| ||||||||
Proceeds from maturities of marketable securities |
|
| 5,937 |
|
|
| 17,494 |
| ||||||||
Purchases of marketable securities |
|
| 0 |
|
|
| (25,151 | ) | ||||||||
Net cash provided by (used in) investing activities |
|
| 1,892 |
|
|
| (8,133 | ) | ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from note payable |
|
| 0 |
|
|
| 5,032 |
| ||||||||
Issuance of common stock, net of issuance costs |
|
| 0 |
|
|
| 574 |
| ||||||||
Exercise of stock options |
|
| 0 |
|
|
| 135 |
| ||||||||
Purchase of common stock |
|
| (3,774 | ) |
|
| (1,120 | ) |
|
| (583 | ) |
|
| (870 | ) |
Net cash provided by (used in) financing activities |
|
| (3,774 | ) |
|
| 4,621 |
| ||||||||
Net increase in cash and cash equivalents |
|
| 1,662 |
|
|
| 721 |
| ||||||||
Repayment of loan |
|
| (15 | ) |
|
| 0 |
| ||||||||
Net cash used in financing activities |
|
| (598 | ) |
|
| (870 | ) | ||||||||
Effect of exchange rate on cash |
|
| 1 |
|
|
| 0 |
| ||||||||
Net decrease in cash and cash equivalents |
|
| (10,561 | ) |
|
| (14,991 | ) | ||||||||
Cash and cash equivalents at beginning of period |
|
| 19,696 |
|
|
| 11,213 |
|
|
| 13,789 |
|
|
| 19,696 |
|
Cash and cash equivalents at end of period |
| $ | 21,358 |
|
| $ | 11,934 |
|
| $ | 3,228 |
|
| $ | 4,705 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received (paid) for income taxes, net |
| $ | (31 | ) |
| $ | 12 |
| ||||||||
Cash paid for income taxes, net |
| $ | (3 | ) |
| $ | (17 | ) | ||||||||
Supplemental schedule of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment and patent costs in accounts payable |
| $ | (67 | ) |
| $ | (26 | ) |
| $ | 29 |
|
| $ | (103 | ) |
Stock-based compensation capitalized to software and patent costs |
| $ | 74 |
|
| $ | 85 |
|
| $ | 36 |
|
| $ | 36 |
|
Cashless exercise of stock options |
| $ | 1,075 |
|
| $ | 0 |
| ||||||||
Common stock issued for acquisition |
| $ | 31,519 |
|
| $ | 0 |
| ||||||||
Warrants issued for acquisition |
| $ | 1,601 |
|
| $ | 0 |
| ||||||||
Right of use assets obtained in exchange for lease obligations |
| $ | 5,176 |
|
| $ | 0 |
|
|
The accompanying notes are an integral part of these consolidated financial statementsstatements.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(UNAUDITED)
1. Description of Business and Significant Accounting Policies
Description of Business
Digimarc Corporation (“Digimarc” or the “Company”), an Oregon corporation, is a pioneerglobal leader in the automatic identification of media, including packaging, other commercial print, digital images, audioproduct digitization, delivering business value across industries through unique identifiers and video. The Digimarc Platform takes industry beyond the barcode, providing innovative and comprehensive automatic identification software and servicescloud-based solutions. Our technology illuminates a product's journey to simplify search and transform information discovery. The Digimarc Platform enables applications that benefit retailers and consumer brands, national and state government agencies, media and entertainment industries, and others.provide complete visibility into all relevant product data, allowing companies to make intelligent business decisions.
The Digimarc Platform features three core capabilities for the identification, discovery and quality management of media. Digimarc Barcode integrates the identification function, which is a novelunique software as a service to manage digital identities, connect physical items using most existing data carrier encoded into media in ways that are generally imperceptiblecarriers, and provide a digital twin to people, permitting the carrier to be repeated many times over the surface of the enhanced media. Digimarc Discover represents the discovery function, which is software for computinghelp connected physical items interact with machines, devices, and network interfaces that recognize and decode indicia of the identity of media. These include, but are not limited to,applications. The Digimarc Barcodes, Quick Response Codes, Universal Product Codes, certain other Global Standards One (“GS1”) approved one-dimensional codes and relevant contextual data. Digimarc Verify incorporates the quality management function, a suite of software tools used to inspect and verify that the identification and discovery of media are both accurate and effective. Together, these core capabilities enable organizations, application developers, and other solution providers to build new and improve existing automatic identification solutions.Platform is underpinned by:
• | Digital Watermarks: Built on a patented foundation, these data carriers provide an imperceptible digital identity and make scanning much more efficient than traditional visual barcodes as they are repeated many times throughout product packaging. |
• | Detection Software: A software program for computing devices and network interfaces that recognizes and decodes Digimarc watermarks and easily scans most digital identifiers. |
• | Verification/QC Software: Verification and quality control software that offers detailed reports enabling printers and premedia professionals to validate Digimarc watermarks and assess the expected performance. |
• | EVRYTHNG Product Cloud: The Product Cloud assigns products a unique digital identity, making products trackable, intelligent, and interactive by applying analytics and real-time intelligence to a company’s data. |
Interim Consolidated Financial Statements
Our significant accounting policies are detailed in “Note 1: Description of Business and Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2020.2021, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 4, 2022 (the “2021 Annual Report”). The Company has added “Business Combinations” below as a new significant accounting policy.
The accompanying interim consolidated financial statements have been prepared from the Company’s records without audit and, in management’s opinion, include all adjustments (consisting of only normal recurring adjustments) necessary to fairly reflect the financial condition and the results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally acceptedGenerally Accepted Accounting Principles in the United States (“U.S. GAAP”) have been condensed or omitted in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).SEC.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s2021 Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26, 2021.Report. The results of operations for the interim periods presented in these consolidated financial statements are not necessarily indicative of the results for the full year.
Principles of Consolidation
The consolidated financial statements include the accounts of Digimarc and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. Digimarc acquired EVRYTHNG Limited (“EVRYTHNG”) on January 3, 2022. The financial results of EVRYTHNG are consolidated with Digimarc’s financial results for the post-acquisition period. See Notes 6 and 9 for information related to the EVRYTHNG acquisition.
Reclassifications
Certain prior period amounts in the accompanying consolidated financial statements and notes thereto have been reclassified to conform to current period presentation, including the reclassification of revenue by major target market.presentation. These reclassifications had no material effect on the results of operations or financial position for any period presented.
GoodwillBusiness Combinations
The Company tests goodwill for impairment annually in Juneallocates purchase price consideration to the tangible assets acquired, liabilities assumed and whenever events or changes in circumstances indicate that the carrying value may exceed theintangible assets acquired based on their estimated fair value.values. The Company operates as a single reporting unit. The Company estimatespurchase price is determined based on the fair value of its single reporting unit using a market approach, which takes into account the Company’s market capitalization plus an estimated control premium.assets transferred,
7
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In connection withthousands, except per share data)
(UNAUDITED)
liabilities assumed and equity interests issued, after considering any transactions that are separate from the Company’s annual impairment test of goodwill as of June 30, 2021 and 2020, it was concluded that there was 0 impairment to goodwill as the estimatedbusiness combination. The fair value of equity issued as part of a business combination is determined based on the closing price of the Company’s reporting unit substantially exceededstock on the carrying value.date of issuance. The excess of fair value of purchase price consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Such fair value calculations require management to make significant estimates and assumptions, especially with respect to intangible assets and contingent liabilities. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer bases, acquired technology, useful lives, and discount rates.
The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for an acquisition, which may last up to one year from the acquisition date. During the measurement period, the Company may record adjustments to the fair value of tangible and intangible assets acquired and liabilities assumed, with a corresponding offset to goodwill. After the conclusion of the measurement period or the final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to earnings.
Foreign Currency Translation
The Company translates the accounts of our non-U.S. subsidiaries into U.S. dollars as follows: revenues, expenses, gains and losses are translated at average exchange rates during the period; and assets and liabilities are translated at the exchange rate on the balance sheet date. Translation gains and losses are reported in our Consolidated Balance Sheets as a component of “accumulated other comprehensive income (loss).”
Accounting Pronouncements Adopted
In December 2019,October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12,2021-08, “Income Taxes (ASC 740) Simplifying theBusiness Combination (Topic 805): Accounting for Income TaxesContract Assets and Liabilities from Contracts with Customers,” that removes certain exceptions towhich improves the general
principlesaccounting for acquired revenue contracts with customers in a business combination. The amendments in this update primarily address the accounting for contract assets and alsoliabilities from revenue contracts with customers in a business combination, and improves consistent applicationcomparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and simplifies U.S. GAAP.after a business combination. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.2022. Early adoption is permitted. The Company adopted this new standard on January 1, 2021. The adoption2022. The impact of adopting this standard didwas not have a material impact onto the Company’s consolidated financial condition, results of operations and disclosures.statements.
Accounting Pronouncements Issued But Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (ASC(Topic 326): Measurement of Credit Losses on Financial Instruments,” which amends the guidance on the impairment of financial instruments. The amendments in this update remove the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current U.S. GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new CECL model is based upon expected losses rather than incurred losses. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the impact of the adoption of this standard to have a material impact on its consolidated financial condition, results of operations and disclosures.statements.
2. Fair Value of Financial Instruments
The estimated fair values of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and other accrued liabilities, approximate their carrying values due to the short-term nature of these instruments. The Company’s marketable securities are now classified as available-for-sale, as the Company recently sold a marketable security, which was previously classified as held-to-maturity. The Company has reassessed classification of the remaining marketable securities and therefore adjusted them to be reported at fair value. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in “accumulated other comprehensive income (loss)” in the Consolidated Balance Sheets until realized. Realized gains and losses are included in “other income (loss), net” in the Consolidated Statement of Operations and are derived using the specific identification method for determining the cost of marketable securities sold.
8
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
As of December 31, 2021, the Company’s marketable securities were classified as held-to-maturity and are reported at amortized cost, which approximatesapproximated fair value.
The Company’s fair value hierarchy for its cash equivalents and marketable securities was as follows:
June 30, 2021 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||
March 31, 2022 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||
Money market securities |
| $ | 18,515 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 18,515 |
|
| $ | 4 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 4 |
|
Commercial paper |
|
| 0 |
|
|
| 22,287 |
|
|
| 0 |
|
|
| 22,287 |
|
|
| 0 |
|
|
| 11,351 |
|
|
| 0 |
|
|
| 11,351 |
|
Corporate notes |
|
| 0 |
|
|
| 6,425 |
|
|
| 0 |
|
|
| 6,425 |
| ||||||||||||||||
Federal agency notes |
|
| 0 |
|
|
| 3,739 |
|
|
| 0 |
|
|
| 3,739 |
| ||||||||||||||||
Pre-refunded municipals |
|
| 0 |
|
|
| 14,395 |
|
|
| 0 |
|
|
| 14,395 |
|
|
| 0 |
|
|
| 152 |
|
|
| 0 |
|
|
| 152 |
|
Corporate notes |
|
| 0 |
|
|
| 3,068 |
|
|
| 0 |
|
|
| 3,068 |
| ||||||||||||||||
Total |
| $ | 18,515 |
|
| $ | 39,750 |
|
| $ | 0 |
|
| $ | 58,265 |
|
| $ | 4 |
|
| $ | 21,667 |
|
| $ | 0 |
|
| $ | 21,671 |
|
December 31, 2020 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||
December 31, 2021 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||
Money market securities |
| $ | 10,988 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 10,988 |
|
| $ | 2,478 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 2,478 |
|
Commercial paper |
|
| 0 |
|
|
| 36,478 |
|
|
| 0 |
|
|
| 36,478 |
|
|
| 0 |
|
|
| 13,382 |
|
|
| 0 |
|
|
| 13,382 |
|
Corporate notes |
|
| 0 |
|
|
| 9,585 |
|
|
| 0 |
|
|
| 9,585 |
| ||||||||||||||||
Federal agency notes |
|
| 0 |
|
|
| 3,799 |
|
|
| 0 |
|
|
| 3,799 |
| ||||||||||||||||
Pre-refunded municipals |
|
| 0 |
|
|
| 26,697 |
|
|
| 0 |
|
|
| 26,697 |
|
|
| 0 |
|
|
| 1,063 |
|
|
| 0 |
|
|
| 1,063 |
|
Corporate notes |
|
| 0 |
|
|
| 2,437 |
|
|
| 0 |
|
|
| 2,437 |
| ||||||||||||||||
Total |
| $ | 10,988 |
|
| $ | 65,612 |
|
| $ | 0 |
|
| $ | 76,600 |
|
| $ | 2,478 |
|
| $ | 27,829 |
|
| $ | 0 |
|
| $ | 30,307 |
|
The fair value maturities of the Company’s cash equivalents and marketable securities as of June 30, 2021,March 31, 2022, were as follows:
|
| Maturities by Period |
| |||||||||||||||||
|
| Total |
|
| Less than 1 year |
|
| 1-5 years |
|
| 5 - 10 years |
|
| More than 10 years |
| |||||
Cash equivalents and marketable securities |
| $ | 58,265 |
|
| $ | 58,108 |
|
| $ | 157 |
|
| $ | 0 |
|
| $ | 0 |
|
|
| Maturities by Period |
| |||||||||||||||||
|
| Total |
|
| Less than 1 year |
|
| 1-5 years |
|
| 5 - 10 years |
|
| More than 10 years |
| |||||
Cash equivalents and marketable securities |
| $ | 21,671 |
|
| $ | 15,962 |
|
| $ | 5,709 |
|
| $ | 0 |
|
| $ | 0 |
|
The Company considers all highly liquid marketable securities with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market securities commercial papertotaling $4 and pre-refunded municipals totaling $18,516 and $18,568$2,478 at June 30, 2021,March 31, 2022, and December 31, 2020,2021, respectively. Cash equivalents are carried at either cost or amortized cost,fair value, depending on the type of security, which approximates fair value.security.
3. Revenue Recognition
The Company derives its revenue primarily from software development services and software subscriptions. Applicable revenue recognition criteria are considered separately for each performance obligation as follows:
| • | Service revenue consists primarily of revenue earned from the performance of software development and, to a lesser extent, professional services. The majority of |
| • | Subscription revenue consists primarily of revenue earned from the |
Customer arrangements may contain multiple performance obligations such as software development services, software products, and maintenance and support fees. The Company accounts for individual products and services separately if they are distinct. To determine the transaction price, the Company considers the terms of the contract and the Company’s customary business practices. Some contracts may contain variable consideration. In those cases, the Company estimates the amount of variable consideration based on the sum of probability-weighted amounts in a range of possible consideration amounts. As part of this assessment, the Company will evaluate whether any of the variable consideration is constrained and if it is the Company will not include it in the transaction price. The consideration is allocated between distinct products and services based on their stand-alone selling prices. For items that are not sold separately, the Company estimates the standalone selling price based on reasonably available
9
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
information, including market conditions, specific factors affecting the Company, and information about the customer. For distinct products and services, the Company typically recognizes the revenue associated with these performance obligations as they are delivered to the customer. Products and services that are not capable of being distinct are combined with other products or services until a distinct performance obligation is identified.
All revenue recognized in the Consolidated Statements of Operations is considered to be revenue from contracts with customers.
The following table provides information about disaggregated revenue by major target market in the Company’s single reporting segment:
|
| Three |
|
| Three |
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||||||||||
�� |
| Ended |
|
| Ended |
| ||||||||||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| March 31, |
|
| March 31, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||||
Government |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service |
| $ | 3,522 |
|
| $ | 3,713 |
|
| $ | 7,107 |
|
| $ | 7,365 |
|
| $ | 3,272 |
|
| $ | 3,585 |
|
Subscription |
|
| 300 |
|
|
| 300 |
|
|
| 600 |
|
|
| 600 |
|
|
| 300 |
|
|
| 300 |
|
Total Government |
|
| 3,822 |
|
|
| 4,013 |
|
|
| 7,707 |
|
|
| 7,965 |
|
|
| 3,572 |
|
|
| 3,885 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service |
| $ | 269 |
|
| $ | 179 |
|
| $ | 468 |
|
| $ | 265 |
|
| $ | 348 |
|
| $ | 199 |
|
Subscription |
|
| 2,187 |
|
|
| 2,305 |
|
|
| 4,803 |
|
|
| 4,456 |
|
|
| 3,491 |
|
|
| 2,616 |
|
Total Commercial |
|
| 2,456 |
|
|
| 2,484 |
|
|
| 5,271 |
|
|
| 4,721 |
|
|
| 3,839 |
|
|
| 2,815 |
|
Total |
| $ | 6,278 |
|
| $ | 6,497 |
|
| $ | 12,978 |
|
| $ | 12,686 |
|
| $ | 7,411 |
|
| $ | 6,700 |
|
The Company has contract assets from contracts with customers that are classified as “trade accounts receivable.”receivable” in the Consolidated Balance Sheets. Financial information about trade accounts receivable is included in Note 8.
The Company has contract liabilities from contracts with customers that are classified as “deferred revenue.”revenue” in the Consolidated Balance Sheets. Deferred revenue consists of billings in advance for services and subscriptions for which the performance obligation has not been satisfied.
The following table provides information about contract liabilities from contracts with customers:
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Deferred revenue, current |
| $ | 2,659 |
|
| $ | 3,002 |
|
| $ | 4,315 |
|
| $ | 2,989 |
|
Deferred revenue, long-term |
|
| 42 |
|
|
| 30 |
|
|
| 46 |
|
|
| 33 |
|
Total |
| $ | 2,701 |
|
| $ | 3,032 |
|
| $ | 4,361 |
|
| $ | 3,022 |
|
The Company recognized $2,010$1,351 of revenue during the sixthree months ended June 30, 2021,March 31, 2022, that was included in the contract liability balance as of December 31, 2020.2021.
The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $16,645$25,339 and $17,921$16,870 as of June 30, 2021,March 31, 2022, and December 31, 2020,2021, respectively.
4. Segment Information
Geographic Information
The Company derives its revenue from a single reporting segment: automatic identification solutions. Revenue is generated in this segment primarily through software development services and software subscriptions. The Company markets its products in the U.S. and in non-U.S. countries through its sales personnel and partners.
10
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
Revenue by geographic area, based upon the “bill-to” location, was as follows:
|
| Three |
|
| Three |
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| March 31, |
|
| March 31, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||||
Domestic |
| $ | 1,640 |
|
| $ | 1,856 |
|
| $ | 3,362 |
|
| $ | 3,615 |
|
| $ | 2,363 |
|
| $ | 1,722 |
|
International (1) |
|
| 4,638 |
|
|
| 4,641 |
|
|
| 9,616 |
|
|
| 9,071 |
|
|
| 5,048 |
|
|
| 4,978 |
|
Total |
| $ | 6,278 |
|
| $ | 6,497 |
|
| $ | 12,978 |
|
| $ | 12,686 |
|
| $ | 7,411 |
|
| $ | 6,700 |
|
(1) | Revenue from the Central Banks, consisting of a consortium of central banks around the world, is classified as international revenue. Reporting revenue by country for this customer is not practicable. |
Major Customers
The following customers accounted for 10% or more of revenue:
|
| Three |
|
| Three |
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| March 31, |
|
| March 31, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||||
Central Banks |
|
| 61 | % |
|
| 62 | % |
|
| 59 | % |
|
| 63 | % |
|
| 47 | % |
|
| 58 | % |
Walmart Inc. |
|
| 13 | % |
|
| 12 | % |
|
| 12 | % |
|
| 12 | % |
|
| 10 | % |
|
| 11 | % |
Long-Lived Assets by Geographical Area
The Company’s long-livedLong-lived assets are all domiciled in the U.S.by geographic area was as follows:
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
United States |
| $ | 2,820 |
|
| $ | 2,875 |
|
Europe |
|
| 102 |
|
|
| 0 |
|
Total |
| $ | 2,922 |
|
| $ | 2,875 |
|
5. Stock-Based Compensation
Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include stock option grants andoptions, restricted stock, restricted stock unit,units and performance restricted stock unit awards.units.
Stock-based compensation expense related to internal labor is capitalized to software and patent costs based on direct labor hours charged to capitalized software and patent costs.
Determining Fair Value
Stock Options
The Company estimates the fair value of stock options on the date of grant (measurement date) using the Black-Scholes option pricing model. The Company recognizes the fair value of stock option awards on a straight-line basis over the vestingservice period of the award.
The following inputs are used in the Black-Scholes option pricing model to estimate the fair value of stock options:
Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.
Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms and vesting schedules of the awards. Stock options granted generally vest over a service period of three years and have a contractual term of ten years.
Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the expected life of the award.
Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the expected life of the award.
Expected Dividend Yield. The expected dividend yield is derived by dividing the Company’s expected annual dividend rate over the expected term by the fair value of the Company’s common stock at the grant date.
There were 01 stock options granted during the three and six months ended June 30,March 31, 2022, as replacement equity awards for vested stock options held by EVRYTHNG employees. NaN stock options were granted during the three months ended March 31, 2021 and 2020..
11
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
Restricted Stock
The fair value of restricted stock awards, is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the vesting period of the award. Restricted stock awards granted generally vest over a service period of three to four years for employee grants and one to three years for director grants.
Restricted Stock Units
The fair value of restricted stock unit (“RSU”) awards, whichthat vest upon meeting a service condition, is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three years.to four years for employee grants and one to three years for director grants.
There were 0 RSUs granted during the three and six months ended June 30, 2021 and 2020.
Performance Restricted Stock Units
The fair value of performance restricted stock unit (“PRSU”RSU”) awards, that vest upon meeting a service condition, is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally three to four years for employee grants.
Performance Stock Units
The fair value of performance stock unit (“PSU”) awards, that vest upon meeting a performance condition, such as the Company exceeding a future annual recurring revenue target, and a service condition, is determined based on the probability of achievement of the performance criteria as of each reporting date (measurement date). The probability of achievement is subject to judgment, and could change from period to period, impacting the fair value of the award. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally three years for employee grants.
The fair value of PSU awards, that vest upon meeting a market condition, such as the Company exceeding a target stock price in the future,shareholder returns as compared to an index of peer companies, and a service condition, is determined on the date of grant (measurement date) using the Monte Carlo valuation model. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally three years.years for employee grants.
The following inputs are used in the Monte Carlo valuation model to estimate the fair value of PRSUs:value:
Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.
Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the term of the award.
Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the term of the award.
There were 0 PRSUs granted during the three and six months ended June 30, 2021 and 2020.Monte Carlo valuation inputs:
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Stock price |
| $ | 32.02 |
|
| $ | 0 |
|
Expected volatility |
|
| 82.8 | % |
|
| 0 |
|
Risk-free interest rate |
|
| 1.8 | % |
|
| 0 |
|
On April 12 2021, Bruce Davis notified the Company of his intention to retire as the Company’s President and Chief Executive Officer and as Chairman and a member of the Board of Directors effective April 12, 2021 (the “Transition Date”).
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In connection with his retirement, the Company entered into a Separation Agreement and General Release with Mr. Davis (the “Separation Agreement”), dated April 12, 2021. Pursuant to the Separation Agreement, Mr. Davis agreed to release certain claims he may have against the Company and other released parties, and Mr. Davis’s stock options, restricted stock and RSUs that vest solely based on continued service, and PRSUs that were earned and remained subject to time-based vesting, immediately vested with respect to the number of shares that would have vested if Mr. Davis’s employment had continued for an additional twenty-four months from the Transition Date, and his right to exercise vested stock options will expire on the earliest of (i) twenty-eight months from the Transition Date, (ii) the latest date the particular stock option could have expired by its original terms under any circumstances, or (iii) the tenth anniversary of the original date of grant of the particular stock option.thousands, except per share data)
The terms of the Separation Agreement resulted in the acceleration of vesting for 137 stock options, 30 RSUs, and 82 PRSUs and the forfeiture of 35 stock options, 15 RSUs, and 42 PRSUs. The terms of the Separation Agreement also resulted in a modification to all outstanding stock options, as the expiration date for exercise of the options were extended beyond the original terms of the options, and 21 PRSUs were modified to provide for accelerated vesting. In accordance with ASC 718, Compensation –
Stock Compensation, the Company calculated the fair value of the modified stock options and PRSUs and calculated the fair value of the original stock options and PRSUs immediately before the modification. The Company recorded additional stock-based compensation expense of $1,926 upon modification of these awards.(UNAUDITED)
The Company incurred $3,990 of stock-based compensation expense, including the impact of the modified awards, during the three and six months ended June 30, 2021, associated with the Separation Agreement.
Stock-Based Compensation
|
| Three |
|
| Three |
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| March 31, |
|
| March 31, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
| $ | 178 |
|
| $ | 196 |
|
| $ | 351 |
|
| $ | 386 |
|
| $ | 201 |
|
| $ | 173 |
|
Sales and marketing |
|
| 1,550 |
|
|
| 604 |
|
|
| 1,990 |
|
|
| 1,083 |
|
|
| 744 |
|
|
| 440 |
|
Research, development and engineering |
|
| 405 |
|
|
| 402 |
|
|
| 801 |
|
|
| 801 |
|
|
| 507 |
|
|
| 396 |
|
General and administrative |
|
| 4,604 |
|
|
| 1,125 |
|
|
| 5,605 |
|
|
| 2,252 |
|
|
| 1,016 |
|
|
| 1,001 |
|
Stock-based compensation expense |
|
| 6,737 |
|
|
| 2,327 |
|
|
| 8,747 |
|
|
| 4,522 |
|
|
| 2,468 |
|
|
| 2,010 |
|
Capitalized to software and patent costs |
|
| 38 |
|
|
| 50 |
|
|
| 74 |
|
|
| 85 |
|
|
| 36 |
|
|
| 36 |
|
Total stock-based compensation |
| $ | 6,775 |
|
| $ | 2,377 |
|
| $ | 8,821 |
|
| $ | 4,607 |
|
| $ | 2,504 |
|
| $ | 2,046 |
|
The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s equity compensation plan:
|
| As of |
|
| As of |
| ||
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Total unrecognized compensation costs |
| $ | 13,411 |
|
| $ | 14,416 |
|
|
| As of |
|
| As of |
| ||
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Total unrecognized compensation costs |
| $ | 20,967 |
|
| $ | 11,301 |
|
Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.
The Company expects to recognize the total unrecognized compensation costs as of June 30, 2021,March 31, 2022, for stock option, restricted stock, RSU, and PRSUall non-vested stock-based awards over weighted average periods through June 30, 2025,March 31, 2026, as follows:
|
|
| Restricted |
|
|
|
| |||||||
|
|
| Stock |
| RSUs |
|
| PSUs | ||||||
Weighted average period |
|
|
|
|
|
|
| 1.89 years |
As of June 30, 2021,March 31, 2022, under the Company’s stock-based compensation plan, an additional 859585 shares remained available for future grants. The Company issues new shares upon exercises of stock options, grants of restricted stock awards and vesting of RSU and PRSUPSU awards.
Stock Option Activity
The following table reconcilespresents the outstanding balance of stock option awards:activity:
|
|
|
|
|
| Weighted |
|
| Weighted |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Average |
|
| Aggregate |
| |||
|
| Number of |
|
| Exercise |
|
| Grant Date |
|
| Intrinsic |
| ||||
For the three and six months ended June 30, 2021: |
| Options |
|
| Price |
|
| Fair Value |
|
| Value |
| ||||
Outstanding at December 31, 2020 and March 31, 2021 |
|
| 305 |
|
| $ | 27.94 |
|
| $ | 12.65 |
|
|
|
|
|
Granted |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
|
|
|
Exercised |
|
| (70 | ) |
|
| 15.36 |
|
|
| 10.42 |
|
|
|
|
|
Forfeited or expired |
|
| (35 | ) |
|
| 15.36 |
|
|
| 7.36 |
|
|
|
|
|
Outstanding at June 30, 2021 |
|
| 200 |
|
| $ | 34.55 |
|
| $ | 15.43 |
|
| $ | 395 |
|
Exercisable at June 30, 2021 |
|
| 200 |
|
| $ | 34.55 |
|
|
|
|
|
| $ | 395 |
|
Unvested at June 30, 2021 |
|
| 0 |
|
| $ | 0 |
|
|
|
|
|
| $ | 0 |
|
|
|
|
|
|
| Weighted |
|
| Weighted |
|
|
|
|
| ||
|
|
|
|
|
| Average |
|
| Average |
|
| Aggregate |
| |||
|
| Number of |
|
| Exercise |
|
| Grant Date |
|
| Intrinsic |
| ||||
Three months ended March 31, 2022: |
| Options |
|
| Price |
|
| Fair Value |
|
| Value |
| ||||
Outstanding at December 31, 2021 |
|
| 50 |
|
| $ | 39.54 |
|
| $ | 22.23 |
|
|
|
|
|
Granted |
|
| 1 |
|
| $ | 22.15 |
|
| $ | 0 |
|
|
|
|
|
Exercised |
|
| 0 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
Forfeited or expired |
|
| 0 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
Outstanding at March 31, 2022 |
|
| 51 |
|
| $ | 39.14 |
|
| $ | 21.72 |
|
| $ | 5 |
|
Exercisable at March 31, 2022 |
|
| 51 |
|
| $ | 39.14 |
|
|
|
|
|
| $ | 5 |
|
13
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
The aggregate intrinsic value is based on the closing price of $33.50$26.37 per share of Digimarc common stock on June 30, 2021,March 31, 2022, which would have been received by the optionees had all of the options with exercise prices less than $33.50$26.37 per share been exercised on that date.
Restricted Stock Activity
The following tables reconciletable presents the unvested balancerestricted stock activity:
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
Three months ended March 31, 2022: |
| Shares |
|
| Fair Value |
| ||
Unvested balance, December 31, 2021 |
|
| 360 |
|
| $ | 34.90 |
|
Granted |
|
| 0 |
|
| $ | 0 |
|
Vested |
|
| (50 | ) |
| $ | 32.21 |
|
Forfeited |
|
| (8 | ) |
| $ | 36.82 |
|
Unvested balance, March 31, 2022 |
|
| 302 |
|
| $ | 35.29 |
|
The fair value of restricted stock awards:awards vested is as follows:
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
Three months ended June 30, 2021: |
| Shares |
|
| Fair Value |
| ||
Unvested balance, March 31, 2021 |
|
| 501 |
|
| $ | 33.25 |
|
Granted |
|
| 44 |
|
| $ | 30.42 |
|
Vested |
|
| (71 | ) |
| $ | 26.94 |
|
Forfeited |
|
| (16 | ) |
| $ | 39.63 |
|
Unvested balance, June 30, 2021 |
|
| 458 |
|
| $ | 33.76 |
|
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
Six months ended June 30, 2021: |
| Shares |
|
| Fair Value |
| ||
Unvested balance, December 31, 2020 |
|
| 416 |
|
| $ | 28.20 |
|
Granted |
|
| 198 |
|
| $ | 40.95 |
|
Vested |
|
| (121 | ) |
| $ | 27.42 |
|
Forfeited |
|
| (35 | ) |
| $ | 30.34 |
|
Unvested balance, June 30, 2021 |
|
| 458 |
|
| $ | 33.76 |
|
The following table indicates the fair value of all restricted stock awards that vested:
|
| Three |
|
| Three |
|
| Six |
|
| Six |
| ||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Fair value of restricted stock awards vested |
| $ | 2,285 |
|
| $ | 1,260 |
|
| $ | 4,460 |
|
| $ | 3,071 |
|
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Fair value of restricted stock awards vested |
| $ | 1,603 |
|
| $ | 2,175 |
|
Restricted Stock Units Activity
The following table reconcilespresents the unvested balance of RSU awards:activity:
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
Three months ended March 31, 2022: |
| Shares |
|
| Fair Value |
| ||
Unvested balance, December 31, 2021 |
|
| 0 |
|
| $ | 0 |
|
Granted |
|
| 309 |
|
| $ | 32.35 |
|
Vested |
|
| (1 | ) |
| $ | 40.84 |
|
Forfeited |
|
| 0 |
|
| $ | 0 |
|
Unvested balance, March 31, 2022 |
|
| 308 |
|
| $ | 32.31 |
|
|
|
|
|
|
| Weighted |
| |
|
|
|
|
|
| Average |
| |
|
| Number of |
|
| Grant Date |
| ||
For the three and six months ended June 30, 2021: |
| Units |
|
| Fair Value |
| ||
Unvested balance, December 31, 2020 and March 31, 2021 |
|
| 45 |
|
| $ | 15.36 |
|
Granted |
|
| 0 |
|
| $ | 0 |
|
Vested |
|
| (30 | ) |
|
| 15.36 |
|
Forfeited |
|
| (15 | ) |
| $ | 15.36 |
|
Unvested balance, June 30, 2021 |
|
| 0 |
|
| $ | 0 |
|
The fair value of RSUsRSU awards vested was $1,050 for the three and six months ended June 30, 2021.is as follows:
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Fair value of RSU awards vested |
| $ | 47 |
|
| $ | 0 |
|
14
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
Performance Restricted Stock Units Activity
The following table reconcilespresents the unvested balance of PRSU awards:PSU activity:
|
|
|
|
|
| Weighted |
|
|
|
|
|
| Weighted |
| ||
|
|
|
|
|
| Average |
|
|
|
|
|
| Average |
| ||
|
| Number of |
|
| Grant Date |
|
| Number of |
|
| Grant Date |
| ||||
For the three and six months ended June 30, 2021: |
| Units |
|
| Fair Value |
| ||||||||||
Unvested balance, December 31, 2020 and March 31, 2021 |
|
| 124 |
|
| $ | 11.08 |
| ||||||||
Three months ended March 31, 2022: |
| Shares |
|
| Fair Value |
| ||||||||||
Unvested balance, December 31, 2021 |
|
| 0 |
|
| $ | 0 |
| ||||||||
Granted |
|
| 0 |
|
| $ | 0 |
|
|
| 144 |
|
| $ | 32.02 |
|
Vested |
|
| (82 | ) |
|
| 15.54 |
|
|
| 0 |
|
| $ | 0 |
|
Forfeited |
|
| (42 | ) |
|
| 11.08 |
|
|
| 0 |
|
| $ | 0 |
|
Unvested balance, June 30, 2021 |
|
| 0 |
|
| $ | 0 |
| ||||||||
Unvested balance, March 31, 2022 |
|
| 144 |
|
| $ | 0 |
|
|
|
The fair value of PRSUsPSU awards vested was $2,886 for the three and six months ended June 30, 2021.is as follows:
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Fair value of PSU awards vested |
| $ | 0 |
|
| $ | 0 |
|
6.6. Shareholders’ Equity
In May 2019,EVRYTHNG Acquisition
On January 3, 2022, the Company closed on its acquisition of EVRYTHNG pursuant to the Share Purchase Agreement (“Purchase Agreement”) entered into an Equity Distribution Agreement, wherebyon November 15, 2021. Upon closing, EVRYTHNG became a wholly owned subsidiary of the Company.
The Company acquired all outstanding shares of EVRYTHNG’s share capital in exchange for aggregate initial consideration consisting of 772 shares of common stock of the Company may sell from timeand warrants to time through Wells Fargo Securities, LLC,purchase 231 shares of common stock of the Company. A portion of the consideration was held back by the Company to secure any post-closing adjustments to the initial consideration and the indemnification obligations of the EVRYTHNG sellers. The Company also paid $3,986 of closing costs on behalf of the EVRYTHNG sellers.
The warrants had a per share exercise price of $36.56 and could only be exercised by payment of the exercise price in cash. All but 12 of the warrants expired unexercised on March 27, 2022. The remaining 12 warrants expire on June 13, 2022.
The Company granted replacement equity awards to the holders of vested and unvested EVRYTHNG options, pursuant to the terms of the Purchase Agreement. The replacement equity awards had substantially equivalent economic value and vesting terms as its sales agent,the cancelled vested and unvested EVRYTHNG options.
The Purchase Agreement provided for additional shares of the Company’s common stock, having an aggregate offeringsubject to certain conditions, to be issued in September 2022. The number of additional common shares, before any downward adjustments, was equivalent to $50,000 of the Company’s common stock. The number of additional common shares would be adjusted downward if EVRYTHNG failed to meet its Product Annual Recurring Revenue target of $10,000 by February 28, 2022, and/or if the Company’s average stock price during the applicable measurement period was higher than its stock price as of upthe closing of the EVRYTHNG acquisition. NaN additional shares of the Company’s common stock are expected to $30,000.
There were 0be issued, outside of the issuance of shares sold forheld back for any post-closing adjustments and indemnification obligations, as the three and six months ended June 30, 2021.
Forconditions for the six months ended June 30, 2020, the Company sold 28additional shares at an average price of $21.92 under the Equity Distribution Agreement totaling $611 of cash proceeds, less $14 of commissions and $23 of stock issuance costs, for net cash proceeds of $574.
As of June 30, 2021, there was $6,932 available for future issuance under the Equity Distribution Agreement.have not been met.
7. Earnings7. Loss Per Common Share
The Company calculates basic and diluted earnings per common share in accordance with ASC 260, “Earnings Per Share,” using the two-class method because the Company’s unvested restricted stock is a participating security since these awards contain
15
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
non-forfeitable rights to receive dividends. Under the two-class method, earnings are allocated to each class of common stock and participating security as if all of the earnings for the period had been distributed.
Basic earnings per common share excludes dilution and is calculated by dividing earnings to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing earnings to common shares by the weighted-average number of common shares, as adjusted for the potentially dilutive effect of stock options, RSUs and PRSUs.PSUs. The dilutive effect of stock options, RSUs and PRSUsPSUs is determined using the treasury stock method.
The following table reconciles earnings (loss)loss per common share:
|
| Three |
|
| Three |
|
| Six |
|
| Six |
| ||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Basic Earnings (Loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss to common shares — basic |
| $ | (15,422 | ) |
| $ | (7,461 | ) |
| $ | (23,644 | ) |
| $ | (16,369 | ) |
Weighted average common shares outstanding — basic |
|
| 16,430 |
|
|
| 12,108 |
|
|
| 16,382 |
|
|
| 12,073 |
|
Basic earnings (loss) per common share |
| $ | (0.94 | ) |
| $ | (0.62 | ) |
| $ | (1.44 | ) |
| $ | (1.36 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shares — diluted |
| $ | (15,422 | ) |
| $ | (7,461 | ) |
| $ | (23,644 | ) |
| $ | (16,369 | ) |
Weighted average common shares outstanding — diluted |
|
| 16,430 |
|
|
| 12,108 |
|
|
| 16,382 |
|
|
| 12,073 |
|
Diluted earnings (loss) per common share |
| $ | (0.94 | ) |
| $ | (0.62 | ) |
| $ | (1.44 | ) |
| $ | (1.36 | ) |
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Basic Loss per Common Share: |
|
|
|
|
|
|
|
|
Net loss attributable to common shares — basic |
| $ | (17,781 | ) |
| $ | (8,222 | ) |
Weighted average common shares outstanding — basic |
|
| 17,344 |
|
|
| 16,333 |
|
Basic loss per common share |
| $ | (1.03 | ) |
| $ | (0.50 | ) |
|
|
|
|
|
|
|
|
|
Diluted Loss per Common Share: |
|
|
|
|
|
|
|
|
Net loss attributable to common shares — diluted |
| $ | (17,781 | ) |
| $ | (8,222 | ) |
Weighted average common shares outstanding — diluted |
|
| 17,344 |
|
|
| 16,333 |
|
Diluted loss per common share |
| $ | (1.03 | ) |
| $ | (0.50 | ) |
The following table indicates the common stock equivalents related to stock options, RSUs and PRSUsPSUs that were anti-dilutive and excluded from diluted earnings per common share calculations:
|
| Three |
|
| Three |
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| March 31, |
|
| March 31, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||||
Anti-dilutive shares due to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise prices higher than the average market price |
|
| 100 |
|
|
| 550 |
|
|
| 100 |
|
|
| 550 |
|
|
| 50 |
|
|
| 0 |
|
Net loss |
|
| 0 |
|
|
| 0 |
|
|
| 61 |
|
|
| 0 |
|
|
| 0 |
|
|
| 162 |
|
8.8. Trade Accounts Receivable
Trade Accounts Receivable
Trade accounts receivable are recorded at the contractual or invoiced amount.
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Trade accounts receivable, current |
| $ | 4,615 |
|
| $ | 3,932 |
|
| $ | 5,973 |
|
| $ | 6,393 |
|
Trade accounts receivable, long-term |
|
| 267 |
|
|
| 0 |
|
|
| 123 |
|
|
| 186 |
|
Allowance for doubtful accounts |
|
| (25 | ) |
|
| (25 | ) |
|
| (39 | ) |
|
| (25 | ) |
Trade accounts receivable, net |
| $ | 4,857 |
|
| $ | 3,907 |
|
| $ | 6,057 |
|
| $ | 6,554 |
|
Unpaid deferred revenue included in trade accounts receivable |
| $ | 715 |
|
| $ | 1,711 |
|
| $ | 1,206 |
|
| $ | 1,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing trade accounts receivable. The Company determines the allowance based on historical write-off experience and current information. The Company reviews its allowance for doubtful accounts each reporting period. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Unpaid Deferred Revenue
The unpaid deferred revenue that is included in trade accounts receivable is billed in accordance with the provisions of the contracts with the Company’s customers.
Major Customers
The following customers accounted for 10% or more of trade accounts receivable, net:
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Central Banks |
|
| 47 | % |
|
| 69 | % |
Walmart, Inc |
|
| 15 | % |
| * |
|
|
|
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Company A |
|
| 35 | % |
|
| 43 | % |
Company B |
| * |
|
|
| 15 | % | |
Company C |
| * |
|
|
| 11 | % |
*Less than 10%
9. Business Combination
On January 3, 2022, the Company completed its acquisition of EVRYTHNG, a London-based product cloud company. The aggregate preliminary purchase price for the acquisition was $36,634, which included the fair value of the 772 shares issued of common stock of the Company of $31,519 and the warrants issued to purchase 231 shares of common stock of the Company of $1,601 (see Note 6 for more information). The fair value of the warrants was determined using the Black-Scholes option pricing model using the Company’s stock price on the date of issuance of $40.84, the strike price on the warrants of $36.56 and expected volatility of 60%. The aggregate preliminary purchase price also included $3,986 of cash paid by the Company to pay closing costs on behalf of the EVRYTHNG sellers, less cash acquired of $474. A portion of the consideration was held back by the Company to secure any post-closing adjustments to the initial consideration and the indemnification obligations of the sellers. The aggregate purchase price remains preliminary, as the Company is still finalizing the issuance of the held back consideration.
On December 10, 2021, the Company entered into a Loan Agreement with EVRYTHNG (the “Loan Agreement”) pursuant to the Purchase Agreement. The Loan Agreement provided a loan facility of $2,000 to EVRYTHNG at an interest rate of 1% per annum. The loan matures on December 9, 2022. The loan balance of $2,001 on January 3, 2022, was included in “loan payable to related party” below in the preliminary purchase price allocation, as the liability was assumed by the combined company. The loan payable balance is eliminated in consolidation in the Consolidated Balance Sheet as of March 31, 2022.
17
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
The following table presents the preliminary purchase price allocation:
|
| Preliminary |
| |
|
| Purchase Price |
| |
|
| Allocation |
| |
|
| January 3, 2022 |
| |
Trade accounts receivable, net |
| $ | 717 |
|
Other current assets |
|
| 1,947 |
|
Property and equipment, net |
|
| 99 |
|
Lease right of use assets and other long-term assets |
|
| 484 |
|
Intangibles |
|
| 37,740 |
|
Goodwill |
|
| 5,439 |
|
Accounts payable and other accrued liabilities |
|
| (5,782 | ) |
Deferred revenue |
|
| (1,804 | ) |
Loan payable to related party |
|
| (2,001 | ) |
Lease liability and other long-term liabilities |
|
| (205 | ) |
Total preliminary purchase price |
| $ | 36,634 |
|
The Company preliminarily allocated $23,990 to EVRYTHNG developed technology and $13,750 to EVRYTHNG customer relationships. Preliminary goodwill recognized of $5,439 from the acquisition was primarily attributed to an assembled workforce and expected synergies. The preliminary allocation above is subject to future adjustments during the measurement period. Open areas in the preliminary allocation include finalizing the opening balance sheet, the fair value of acquired intangible assets and recognition of income tax assets and liabilities. The Company incurred transaction costs related to the acquisition of $1,140 during 2021 and $444 in 2022, respectively.
The following unaudited pro forma consolidated results of operations include the financial results of Digimarc and EVRYTHNG assuming the acquisition was completed on January 1, 2021, the beginning of the earliest period presented. Pro forma adjustments are primarily comprised of preliminary estimates of amortization expense on acquired intangible assets, transaction expenses and the elimination of EVRYTHNG’s historical interest expense on long-term debt that was settled at closing. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved or of results that may occur in the future.
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Revenue |
| $ | 7,411 |
|
| $ | 7,933 |
|
Net loss |
| $ | (17,337 | ) |
| $ | (16,359 | ) |
Loss per common share: |
|
|
|
|
|
|
|
|
Basic |
| $ | (1.00 | ) |
| $ | (0.96 | ) |
Diluted |
| $ | (1.00 | ) |
| $ | (0.96 | ) |
9.10. Property and Equipment
Property and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred.
Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally two to ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.
18
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Office furniture and fixtures |
| $ | 1,650 |
|
| $ | 1,650 |
|
| $ | 1,613 |
|
| $ | 1,648 |
|
Software |
|
| 5,354 |
|
|
| 5,004 |
|
|
| 5,870 |
|
|
| 5,674 |
|
Equipment |
|
| 5,131 |
|
|
| 4,967 |
|
|
| 5,402 |
|
|
| 5,250 |
|
Leasehold improvements |
|
| 1,658 |
|
|
| 1,658 |
|
|
| 1,811 |
|
|
| 1,658 |
|
Gross property and equipment |
|
| 13,793 |
|
|
| 13,279 |
|
|
| 14,696 |
|
|
| 14,230 |
|
Less accumulated depreciation and amortization |
|
| (10,711 | ) |
|
| (10,007 | ) |
|
| (11,774 | ) |
|
| (11,355 | ) |
Property and equipment, net |
| $ | 3,082 |
|
| $ | 3,272 |
|
| $ | 2,922 |
|
| $ | 2,875 |
|
10.11. Intangibles
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. NaN impairment charges were recorded for the sixthree months ended June 30, 2021March 31, 2022 and 2020.2021.
Patent costs associated with the application and award of patents in the U.S. and various other countries are capitalized and amortized on a straight-line basis over the term of the patents as determined at the award date, which varies depending on the pendency period of the application, generally approximating seventeen years.
Amortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives of the assets.
|
| Estimated Life |
| June 30, |
|
| December 31, |
|
| Estimated Life |
| March 31, |
|
| December 31, |
| ||||
|
| (years) |
| 2021 |
|
| 2020 |
|
| (years) |
| 2022 |
|
| 2021 |
| ||||
Capitalized patent costs |
| 17-20 |
| $ | 9,967 |
|
| $ | 9,708 |
|
| 17-20 |
| $ | 10,319 |
|
| $ | 10,219 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Intangible assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased patents and intellectual property |
| 3-10 |
|
| 250 |
|
|
| 250 |
| ||||||||||
Existing technology |
| 5 |
|
| 1,560 |
|
|
| 1,560 |
| ||||||||||
Purchased intellectual property |
| 10 |
|
| 250 |
|
|
| 250 |
| ||||||||||
Developed technology |
| 5 |
|
| 24,929 |
|
|
| 1,560 |
| ||||||||||
Customer relationships |
| 7 |
|
| 290 |
|
|
| 290 |
|
| 10 |
|
| 13,684 |
|
|
| 290 |
|
Gross intangible assets |
|
|
|
| 12,067 |
|
|
| 11,808 |
|
|
|
|
| 49,182 |
|
|
| 12,319 |
|
Accumulated amortization |
|
|
|
| (5,461 | ) |
|
| (5,196 | ) |
|
|
|
| (7,349 | ) |
|
| (5,708 | ) |
Intangibles, net |
|
|
| $ | 6,606 |
|
| $ | 6,612 |
|
|
|
| $ | 41,833 |
|
| $ | 6,611 |
|
The amortization of capitalized patent costs, purchased intellectual property, and developed technology is recorded in “cost of revenue” and the amortization of customer relationships is recorded in “sales and marketing” in the Consolidated Statements of Operations.
Amortization expense on intangible assets was as follows:
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| March 31, |
|
| March 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Amortization expense |
| $ | 1,677 |
|
| $ | 142 |
|
19
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
For intangible assets recorded at March 31, 2022, the estimated future aggregate amortization expense for the years ending December 31, 2022 through December 31, 2026 is as follows:
|
| Amortization |
| |
As of March 31, 2022: |
| Expense |
| |
Remaining in 2022 |
| $ | 4,933 |
|
2023 |
|
| 6,571 |
|
2024 |
|
| 6,558 |
|
2025 |
|
| 6,538 |
|
2026 |
|
| 6,506 |
|
11
12. Leases
The Company leases office space in Beaverton, Oregon. . LeasesThe term of the lease runs through March 2024, with remaining rent payments as of March 31, 2022, totaling $1,694 plus operating expenses, payable in monthly installments. The Company stopped using this office space as its corporate headquarters in March 2022 and is now marketing the office space for sublease.
The Company entered into a sublease agreement and lease extension agreement for another facility in Beaverton, Oregon in February 2022 to move the Company’s corporate headquarters. The term of the sublease and lease extension runs through September 2030, with remaining rent payments as of March 31, 2022, totaling $8,756 plus operating expenses, payable in monthly installments. The first 26 months of rent payments and operating expenses are abated to cover the remaining lease term on the Company’s prior corporate headquarters.
The Company leases office space in London, England under an existing lease entered into by EVRYTHNG in July 2019. The term of the lease runs through July 2023, with remaining rent payments as of March 31, 2022, totaling $373 plus operating expenses, payable in quarterly installments.
The Company accounts for leases in accordance with ASC 842, “Leases.” The Company leases its corporate offices in Beaverton, Oregon. The term of the lease runs through March 2024, with remaining rent payments as of June 30, 2021, totaling $2,305, payable in monthly installments.
All of the Company’s leases are operating leases. The following table provides additional details of leases presented in the Consolidated Balance Sheets:
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Right of use assets |
| $ | 1,553 |
|
| $ | 1,793 |
| ||||||||
Lease right of use assets |
| $ | 5,746 |
|
| $ | 1,300 |
| ||||||||
Lease liabilities, current |
| $ | 703 |
|
| $ | 663 |
|
| $ | 1,050 |
|
| $ | 745 |
|
Lease liabilities, long-term |
| $ | 1,412 |
|
| $ | 1,772 |
|
| $ | 6,267 |
|
| $ | 1,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining life |
| 2.7 years |
|
| 3.2 years |
|
| 6.7 years |
|
| 2.2 years |
| ||||
Weighted-average discount rate |
|
| 8 | % |
|
| 8 | % |
|
| 9 | % |
|
| 8 | % |
The current lease liabilities are included in “accounts payable and other accrued liabilities” in the Consolidated Balance Sheets.
The carrying value of the lease right of use assets is includedevaluated for impairment whenever events or changes in “Other assets”circumstances indicate that the carrying amount of the asset may not be recoverable. The Company recorded an “impairment of lease right of use assets and the current and long-term lease liabilities are included in “Accounts payable and other accrued liabilities” and “Lease liability and other long-term liabilities,” respectively,leasehold improvements” of $574 in the Consolidated Balance Sheets.Statements of Operations for the three months ended March 31, 2022. The impairment was triggered when the Company vacated its prior corporate headquarters in March 2022. The impairment charge was determined by comparing the carrying value of the assets to the net present value of estimated cash flows from the future sublease of the office space over the remaining lease term.
Operating lease expense is included in cost“cost of revenuerevenue” and operating expenses“operating expenses” in the Consolidated Statements of Operations and in cash“cash flows from operating activitiesactivities” in the Consolidated Statements of Cash Flows. The operating leases include variable lease payments, which are not material and are included in operating lease expense. Additional details of the Company’s operating leases are presented in the following table:
20
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
(UNAUDITED)
|
| Three |
|
| Three |
|
| Six |
|
| Six |
|
| Three |
|
| Three |
| ||||||
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
|
| Months |
| ||||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| March 31, |
|
| March 31, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||||
Operating lease expense |
| $ | 253 |
|
| $ | 253 |
|
| $ | 510 |
|
| $ | 516 |
|
| $ | 461 |
|
| $ | 257 |
|
Cash paid for operating leases |
| $ | 294 |
|
| $ | 296 |
|
| $ | 591 |
|
| $ | 623 |
|
| $ | 384 |
|
| $ | 297 |
|
The table below reconciles the aggregate cash payment obligations for the first five years and total of the remaining years for the operating lease liability recorded in the Consolidated Balance Sheet as of June 30, 2021:March 31, 2022:
|
| Cash |
|
| Cash |
| ||
|
| Payment |
|
| Payment |
| ||
Year ending December 31: |
| Obligations |
| |||||
Remaining in 2021 |
| $ | 423 |
| ||||
2022 |
|
| 862 |
| ||||
As of March 31, 2022: |
| Obligations |
| |||||
Remaining in 2022 |
| $ | 873 |
| ||||
2023 |
|
| 867 |
|
|
| 1,017 |
|
2024 |
|
| 218 |
|
|
| 1,178 |
|
2025 |
|
| 0 |
|
|
| 1,309 |
|
2026 |
|
| 1,349 |
| ||||
Thereafter |
|
| 0 |
|
|
| 5,138 |
|
Total lease payments |
|
| 2,370 |
|
|
| 10,864 |
|
Imputed interest |
|
| (255 | ) |
|
| (3,547 | ) |
Total minimum lease payments |
| $ | 2,115 |
|
| $ | 7,317 |
|
12. Note Payable
Promissory Note under the Paycheck Protection Program
On April 16, 2020, the Company entered into a Promissory Note with Stearns Bank, N.A. in an aggregate principal amount of $5,032 (the “Note”), pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).13. Income Taxes
The Note matures two years from the disbursement date and bears interest at a rate of 1.000% per annum, with the first six months of interest deferred. Principal and interest are payable monthly commencing six months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties.
Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. The Note is subject to forgiveness to the extent proceeds are used for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest expenses (collectively, “Qualifying Expenses”), pursuant to the terms and limitations of the PPP. The Company believes that it used all of the proceeds from the Note for Qualifying Expenses. However, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part.
On June 29, 2020, the Company was notified by Stearns Bank, N.A. that the Note was transferred to The Loan Source, Inc., (the “Lender”) who will be responsible for servicing the Note going forward, including administering loan forgiveness.
On September 15, 2020, the Company filed its application for 100% forgiveness of the Note. The application was reviewed by the Lender and submitted to the Small Business Administration (“SBA”) for approval on December 17, 2020. The Company has not received any notification from the SBA on the status of the SBA’s review other than receiving a request for additional supporting documentation, which the Company has submitted. Principal and interest payments can be deferred until the forgiveness process is completed.
The following table provides information about the Note:
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Note payable |
| $ | 5,032 |
|
| $ | 5,032 |
|
Accrued interest |
|
| 59 |
|
|
| 33 |
|
Total |
| $ | 5,091 |
|
| $ | 5,065 |
|
|
|
|
|
|
|
|
|
|
Note payable, current |
| $ | 5,091 |
|
| $ | 3,947 |
|
Note payable, long-term |
|
| 0 |
|
|
| 1,118 |
|
Total |
| $ | 5,091 |
|
| $ | 5,065 |
|
13. Income Taxes
The provisionbenefit (provision) for income taxes for the six months ended June 30, 2021 and 2020 reflects current taxes, deferred taxes, and withholding taxes. The effective tax rate for each of the sixthree months ended June 30,March 31, 2022 and 2021 was 1% and 2020 was 0%. , respectively. The tax benefit for the three months ended March 31, 2022 reflects an estimated refundable tax credit to be filed for in the United Kingdom for the 2022 tax year.
The valuation allowance against net deferred tax assets as of June 30, 2021,March 31, 2022, was $61,152,$67,452, an increase of $5,513$3,179 from $55,639$64,273 as of December 31, 2020.2021. The Company continues to provide for a full valuation allowance to offset its net deferred tax assets until such time it is more likely than not the tax assets or portions thereof will be realized.
Excess tax benefitsbenefit of $3,101$5 and $3,897$796 were recognized in the provision for income taxes for the three and six months ended June 30,March 31, 2022 and 2021, respectively, which were offset by $3,101$5 and $3,897 of valuation allowance, respectively. Excess tax deficiencies of $1,003 and $748 were recognized in the provision for income taxes for the three and six months ended June 30, 2020, respectively, which were offset by $1,003 and $748,$796 of valuation allowance, respectively.
14.
14. Commitments and Contingencies
Certain of the Company’s contracts include an indemnification provision for claims from third parties relating to the Company’s intellectual property. Such indemnification provisions are accounted for in accordance with ASC 450, “Contingencies.” To date, there have been no claims made under such indemnification provisions.
The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business. At this time, the Company does not believe that the resolution of any such matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.statements.
15. Subsequent Event
On April 5, 2022, the Company entered into purchase agreements with certain investors providing for the issuance and sale by the Company of 2,250 common shares in a registered direct offering. The common shares were offered at a price of $25.90 per share, and the gross cash proceeds to the Company were $58,275. The closing of the registered direct offering occurred on April 7, 2022. The Company incurred $60 of legal costs related to the offering.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future events or the future financial performance of Digimarc that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. See the discussion regarding forward-looking statements included in this Quarterly Report on Form 10-Q under the caption “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.”
The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Readers are also urged to carefully review and consider the disclosures made in Part II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q and in the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 20202021 filed on February 26, 2021March 4, 2022 (our “2020“2021 Annual Report”), and other reports and filings we have made with the U.S. Securities and Exchange Commission (“SEC”).
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Company,” “Digimarc,” “we,” “our” and “us” refer to Digimarc Corporation. On January 3, 2022, the Company completed the acquisition of EVRYTHNG Limited and its subsidiaries (“EVRYTHNG”), a London-based product cloud company. Unless context otherwise requires, references to EVRYTHNG refer to our wholly owned subsidiary following the acquisition.
All dollar amounts are in thousands except per share amounts or unless otherwise noted. The percentages within the tables may not sum to 100% due to rounding.
Digimarc, Digimarc Barcode, The Barcode of Everything, Barcode of Everything, and Digimarc Discoverthe circle-d logo are registered trademarks of Digimarc Corporation.EVRYTHNG and EVRYTHNG PRODUCT CLOUD are registered trademarks of EVRYTHNG Limited.
Overview
Digimarc Corporation is a pioneerglobal leader in the automatic identification of media, including packaging, other commercial print, digital images, audioproduct digitization, delivering business value across industries through unique identifiers and video. The Digimarc Platform takes industry beyond the barcode, providing innovative and comprehensive automatic identification software and servicescloud-based solutions. Our technology illuminates a product’s journey to simplify search and transform information discovery. The Digimarc Platform enables applications that benefit retailers and consumer brands, national and state government agencies, media and entertainment industries, and others.provide complete visibility into all relevant product data, allowing companies to make intelligent business decisions.
The Digimarc Platform features three core capabilities for the identification, discovery and quality management of media. Digimarc Barcode integrates the identification function, which is a novelunique software as a service to manage digital identities, connect physical items using most existing data carrier encoded into media in ways that are generally imperceptiblecarriers, and provide a digital twin to people, permitting the carrier to be repeated many times over the surface of the enhanced media. Digimarc Discover represents the discovery function, which is software for computinghelp connected physical items interact with machines, devices, and network interfaces that recognize and decode indicia of the identity of media. These include, but are not limited to, Digimarc Barcodes, Quick Response Codes, Universal Product Codes, certain other GS1 approved one-dimensional codes and relevant contextual data. Digimarc Verify incorporates the quality management function, a suite of software tools used to inspect and verify that the identification and discovery of media are both accurate and effective. Together, these core capabilities enable organizations, application developers, and other solution providers to build new and improve existing automatic identification solutions.
applications. The Digimarc Platform enablesis underpinned by:
• | Digital Watermarks: Built on a patented foundation, these data carriers provide an imperceptible digital identity and make scanning much more efficient than traditional visual barcodes as they are repeated many times throughout product packaging. |
• | Detection Software: A software program for computing devices and network interfaces that recognizes and decodes Digimarc watermarks and easily scans most digital identifiers. |
• | Verification/QC Software: Verification and quality control software that offers detailed reports enabling printers and premedia professionals to validate Digimarc watermarks and assess the expected performance. |
• | EVRYTHNG Product Cloud: The Product Cloud assigns products a unique digital identity, making products trackable, intelligent, and interactive by applying analytics and real-time intelligence to a company’s data. |
By enabling customers to create digital identities for physical and digital media objects, and providesDigimarc’s technologies provide many benefits, for connected media, including:
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Our inventions provideDigimarc has also maintained a powerful document security element, giving rise to a long-term relationship with a consortium of central banks (the “Central Banks”) and many leading companies infor over 20 years, providing trusted technology to help deter digital counterfeiting of currency. The relationship was the information technology industry. We and our business partners have successfully propagated thefirst commercially successful large-scale use of our technologytechnologies and protects billions of banknotes in music, movies, television broadcasts, digital images, e-publicationscirculation globally.
We seek patent protection for our inventions to differentiate our products and printed materials. Digimarc Barcode is used in these applications to improve media rightstechnologies, mitigate infringement risks, and asset management, reduce piracy and counterfeiting losses, improve marketing programs, permit more efficient and effective distribution of valuable media content, and enhance consumer entertainment and commercial experiences.
Digimarc Barcode can be used to enhance all forms of media and is generally imperceptible to human senses, but quickly detected by computers, networks, or other digital devices like smartphones and tablets. Unlike traditional barcodes and tags, our solution does not require content owners to give up valuable visual space on their media content, nor does it affect their media content’s overall layout or aesthetics. Digimarc Barcode is generally imperceptible in regular use and does all that visible barcodes do, but performs better.develop opportunities for licensing. Our Digimarc Discover software deliversbroad patent portfolio covers a wide range of rich media experiences to its readers on their smartphones or tablets across multiple media formats, including print, audiomethods, applications, system architectures and video. Unique to Digimarc Discover is its seamless multi-modal use of various content identification technologies as needed, including Digimarc Barcode, when present.processes.
Our intellectual property contains many innovations in digital watermarking, content and object content recognition, digital rights management, and related fields. To protect our inventions, we have implemented an extensive intellectual property protection program that relies on a combination of patent, copyright, trademark and trade secret laws, and nondisclosure agreements and other contracts. As a result, we believe we have one of the world’s most extensive patent portfolios in digital watermarking and related fields, with approximately 1,000 U.S. and foreign patents granted and applications pending as of June 30, 2021.March 31, 2022. The patents in our portfolio each have a life of approximately 20 years from the patent’s effective filing date.
ForOn January 3, 2022, we completed the acquisition of EVRYTHNG. The EVRYTHNG product cloud allows the combined company to now offer a discussion of activities and costs related to our research and development, see “Results of Operations – Summary – Research, development and engineering.”
Forging a Sustainable Future
At Digimarc, the environment is an essential stakeholder in everything we do, and we are committed to harnessing our culture of innovation to mitigate the visible and increasingly damaging effects of rising greenhouse gas emissions. We support a sustainable future by improving plastic sortation at recycling facilities to keep plastic out of landfills and oceans. Our technologies play a meaningful role in reducing food waste and educating consumers on package recyclability.
The Digimarc Platform featurescomplete automatic identification softwaresolution to existing customers and services that help reduce food waste, increase traceability,prospective customers. The aggregate initial consideration for the acquisition was 772 thousand shares of common stock of the Company and promote a circular economywarrants to purchase 231 thousand shares of common stock of the Company at the closing. A portion of the consideration was held back by educating consumers on recycling options and improving plastic sortation at waste facilities. Digimarc Barcode appliedus to plastic packaging, labels, corrugate and other materials, can significantly helpsecure any post-closing adjustments to address pressing environmental issues, such as climate changethe initial consideration and the proliferationindemnification obligations of plastic in our environment.
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Togetherthe sellers. We also paid $4.0 million of closing costs on behalf of the EVRYTHNG sellers.The financial results of EVRYTHNG are consolidated with our customers and partners aroundDigimarc’s financial results for the world, we drive positive impacts across global supply chains. Our efforts prioritize people and the planet by aiming to eliminate waste and helping our customers meet their sustainability goals. As consumption trends and behaviors evolve, we are listening to our partners, their customers and other critical stakeholders, all of whom expect us all to operate with future generations in mind. We partner with global brand leaders, retailers, packaging and print innovators, and other technology solution providers who share the same mission of building a sustainable future.post-acquisition period.
COVID-19 Pandemic
The COVID-19coronavirus 2019 (“COVID-19”) pandemic posescontinues to pose significant risks to our business. The ongoing public health actions attempting to reduce the spread of COVID-19 created and may continue to create significant disruptions to consumer demand, customer and supplier relationships, sales and support processes, and general economic conditions. Accordingly, our management continuously evaluates our business operations, communicates with and monitors the actions of our customers and partners, and reviews our near-term financial
performance as we manage the Company through the uncertainty related to the COVID-19 pandemic. Some of our projects with retail customers and partners have been delayed as a result of the COVID-19 pandemic. Delays in these projects have affected the timing of closing new business. To help ensure adequate liquidity during this period and in light of uncertainties posed by the COVID-19 pandemic, we received a loan on April 16, 2020 under the Paycheck Protection Program (“PPP”). On September 15, 2020, we filed our application for 100% forgiveness of the loan. Our application was reviewed by the lender and submitted to the Small Business Administration (“SBA”) for approval on December 17, 2020. We have not received any notification from the SBA on the status of the SBA’s review other than receiving a request for additional supporting documentation, which we have submitted.
Critical Accounting Policies and Estimates
Detailed information about our critical accounting policies and estimates is set forth in Part III, Item 15 of our 2020 2021 Annual Report (“Exhibits and Financial Statement Schedules”), in “Note 1: Description of Business and Summary of Significant Accounting Policies,,” which is incorporated by reference into this Quarterly Report on Form 10-Q. We also added a new critical accounting policy for “Business Combinations” in Note 1 of this Quarterly Report on Form 10-Q.
Results of Operations
The following table presents statements of operations data for the periods indicated as a percentage of total revenue. The statements of operations for the three months ended March 31, 2022 reflect the operating results of EVRYTHNG from January 3, 2022, the date the acquisition closed, through March 31, 2022.
Unless stated otherwise, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to the three and six month periodsperiod ended June 30, 2021,March 31, 2022, and all changes discussed with respect to such periods reflect changes compared to the three and six month periodsperiod ended June 30, 2020.March 31, 2021.
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| Three |
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| Three |
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| Six |
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| Six |
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| Three |
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| Three |
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| March 31, |
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| March 31, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2022 |
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| 2021 |
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Percentages are percent of total revenue |
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Revenue: |
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Service |
|
| 60 | % |
|
| 60 | % |
|
| 58 | % |
|
| 60 | % |
|
| 49 | % |
|
| 56 | % |
Subscription |
|
| 40 |
|
|
| 40 |
|
|
| 42 |
|
|
| 40 |
|
|
| 51 |
|
|
| 44 |
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Total revenue |
|
| 100 |
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|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 |
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Cost of revenue: |
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Service |
|
| 24 |
|
|
| 25 |
|
|
| 24 |
|
|
| 26 |
| ||||||||
Subscription |
|
| 9 |
|
|
| 8 |
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| 10 |
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| 8 |
| ||||||||
Service (1) |
|
| 25 |
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|
| 23 |
| ||||||||||||||||
Subscription (1) |
|
| 14 |
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| 12 |
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Amortization expense on acquired intangible assets |
|
| 16 |
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| — |
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Total cost of revenue |
|
| 33 |
|
|
| 33 |
|
|
| 34 |
|
|
| 34 |
|
|
| 55 |
|
|
| 35 |
|
Gross profit |
|
| 67 |
|
|
| 67 |
|
|
| 66 |
|
|
| 66 |
|
|
| 45 |
|
|
| 65 |
|
Operating expenses: |
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Sales and marketing |
|
| 100 |
|
|
| 71 |
|
|
| 86 |
|
|
| 78 |
|
|
| 107 |
|
|
| 74 |
|
Research, development and engineering |
|
| 67 |
|
|
| 65 |
|
|
| 64 |
|
|
| 68 |
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|
| 82 |
|
|
| 62 |
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General and administrative |
|
| 146 |
|
|
| 47 |
|
|
| 98 |
|
|
| 51 |
|
|
| 86 |
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|
| 52 |
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Amortization expense on acquired intangible assets |
|
| 5 |
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| — |
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Impairment of lease right of use assets and leasehold improvements |
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| 8 |
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| — |
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Total operating expenses |
|
| 313 |
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|
| 184 |
|
|
| 248 |
|
|
| 197 |
|
|
| 288 |
|
|
| 188 |
|
Operating loss |
|
| (246 | ) |
|
| (116 | ) |
|
| (182 | ) |
|
| (131 | ) |
|
| (243 | ) |
|
| (123 | ) |
Other income, net |
|
| 0 |
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|
| 1 |
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| 0 |
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|
| 2 |
| ||||||||
Other income (loss), net |
|
| (0 | ) |
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| 0 |
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Loss before income taxes |
|
| (246 | ) |
|
| (115 | ) |
|
| (182 | ) |
|
| (129 | ) |
|
| (243 | ) |
|
| (123 | ) |
Benefit (provision) for income taxes |
|
| (0 | ) |
|
| (0 | ) |
|
| (0 | ) |
|
| 0 |
|
|
| 3 |
|
| (—) |
| |
Net loss |
|
| (246 | %) |
|
| (115 | %) |
|
| (182 | %) |
|
| (129 | %) |
|
| (240 | %) |
|
| (123 | %) |
(1) Cost of revenue for Service and Subscription excludes amortization expense on acquired intangible assets. | (1) Cost of revenue for Service and Subscription excludes amortization expense on acquired intangible assets. |
|
Summary
Total revenue for the three month period ended June 30, 2021, decreased 3%March 31, 2022, increased $0.7 million, or 11%, to $6.3$7.4 million, compared to the corresponding three month period ended June 30, 2020, primarily as a resultMarch 31, 2021. The increase reflects EVRYTHNG revenue of lower revenue from Government services and Commercial subscriptions, partially offset by higher Commercial services revenue.
Total revenue$1.5 million for the six month periodthree months ended June 30, 2021, increased 2% to $13.0 million, compared to the corresponding six month period ended June 30, 2020, primarily as a result of higher revenue from Commercial subscription and services,March 31, 2022, partially offset by lower service revenue, from Government services.reflecting $0.3 million of less revenue due to timing of program work with the Central Banks, and lower subscription revenue due to $0.5 million of upfront revenue on a two-year contract signed in the three month period ended March 31, 2021.
Total operating expenses for the three month period ended June 30, 2021,March 31, 2022, increased 65%$8.8 million, or 70%, to $19.7$21.4 million, compared to the corresponding three month period ended June 30, 2020, primarily as a result of $7.5 million of non-recurring costs incurred during the three month period ended June 30,March 31, 2021. These costs were associated with the Separation Agreement and General Release (“Separation Agreement”) we entered into with our former chief executive officer, Bruce Davis, on April 12, 2021 upon his retirement, and severance costs incurred for organizational changes we made in June 2021. Excluding these non-recurring costs,The increase reflects EVRYTHNG operating expenses increased 2% to $12.2of $4.6 million reflecting higher consulting and legal costs, partially offset by lower recurring compensation costs.
Total operating expense for the six month period ended June 30, 2021, increased 29% to $32.2 million, compared to the corresponding six month period ended June 30, 2020, primarily as a result of the $7.5 million of non-recurring costs noted above for the three month periodmonths ended June 30, 2021. Excluding these non-recurringMarch 31, 2022. The remaining increase of $4.2 million reflects $1.2 million of higher compensation costs operating expenses decreased 1%due to $24.7higher headcount and annual compensation adjustments, higher legal, accounting and tax costs of $0.7 million reflecting lowerrelated to the EVRYTHNG acquisition and financing activities, a $0.6 million non-cash impairment charge 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 recurring compensationconference costs partially offset by higher consulting, recruiting and legal costs.of $0.5 million.
Revenue
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| Six |
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| Three |
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| Months |
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| Months |
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| Months |
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| Months |
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| Months |
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| Ended |
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| Ended |
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| Dollar |
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| Percent |
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| Ended |
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| Ended |
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| Dollar |
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| Percent |
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| Ended |
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| Ended |
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| Dollar |
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| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
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| (Decrease) |
| ||||||||||||
Revenue: |
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|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Service |
| $ | 3,791 |
|
| $ | 3,892 |
|
| $ | (101 | ) |
|
| (3 | )% |
| $ | 7,575 |
|
| $ | 7,630 |
|
| $ | (55 | ) |
|
| (1 | )% |
| $ | 3,620 |
|
| $ | 3,784 |
|
| $ | (164 | ) |
|
| (4 | )% |
Subscription |
|
| 2,487 |
|
|
| 2,605 |
|
|
| (118 | ) |
|
| (5 | )% |
|
| 5,403 |
|
|
| 5,056 |
|
|
| 347 |
|
|
| 7 | % |
|
| 3,791 |
|
|
| 2,916 |
|
|
| 875 |
|
|
| 30 | % |
Total |
| $ | 6,278 |
|
| $ | 6,497 |
|
| $ | (219 | ) |
|
| (3 | )% |
| $ | 12,978 |
|
| $ | 12,686 |
|
| $ | 292 |
|
|
| 2 | % |
| $ | 7,411 |
|
| $ | 6,700 |
|
| $ | 711 |
|
|
| 11 | % |
Revenue (as % of total revenue): |
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|
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|
|
|
|
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service |
|
| 60 | % |
|
| 60 | % |
|
|
|
|
|
|
|
|
|
| 58 | % |
|
| 60 | % |
|
|
|
|
|
|
|
|
|
| 49 | % |
|
| 56 | % |
|
|
|
|
|
|
|
|
Subscription |
|
| 40 | % |
|
| 40 | % |
|
|
|
|
|
|
|
|
|
| 42 | % |
|
| 40 | % |
|
|
|
|
|
|
|
|
|
| 51 | % |
|
| 44 | % |
|
|
|
|
|
|
|
|
Total |
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
Service. Service revenue consists primarily of revenue earned from the performance of software development services and, to a lesser extent, professional services. The majority of servicesoftware development contracts are structured as time and materials agreements. Revenue for services is generally recognized as the services are performed. Billing for services rendered generally occurs within one month after the services are provided. Service contracts can range from days to several years in length. Our contract with the Central Banks, which accounts for the majority of our service revenue, has a contract term through December 31, 2024, with the option to extend the term for an additional five years by mutual agreement. The contract is subject to work plans that are reviewed and agreed upon quarterly. The contract provides for predetermined billing rates, which are adjusted annually to account for cost of living variables, and provides for the reimbursement of third party costs incurred to support the work plans.
The decreases$0.2 million decrease in service revenue for the three and six month periodsperiod ended June 30, 2021,March 31, 2022, compared to the corresponding three and six month periodsperiod ended June 30, 2020, were primarilyMarch 31, 2021, included $0.3 million of service revenue from EVRYTHNG for the three months ended March 31, 2022. Excluding the service revenue from EVRYTHNG, service revenue decreased $0.5 million due to decreases in services to the Central Banks as a result of the timing of program work partially offset by growth in servicewith the Central Banks, which accounted for $0.3 million of the decrease, and lower revenue from Commercial customers.professional services work.
Subscription. Subscription revenue consists primarily of revenue earned from the salelicensing of software products and, to a lesser extent, the licensing and sale of intellectual property. The majority of subscription contracts are recurring, paid in advance and recognized over the term of the subscription, which is typically one to three years.
The decrease$0.9 million increase in subscription revenue for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020, was primarilyMarch 31, 2021, included $1.2 million of subscription revenue from EVRYTHNG for the three months ended March 31, 2022. Excluding the subscription revenue from EVRYTHNG, subscription revenue decreased $0.3 million due to lower$0.5 million of upfront revenue from Commercial customers.
The increaseon a two-year contract signed in subscription revenue for sixthe three month period ended June 30,March 31, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to entering into a contract with apartially offset by revenue from new Commercial customer. Most of the minimum contract value was recognized as revenue upon delivery of the software, instead of recognized ratably over the two-year term of the contract, because we had no continuing performance obligations after delivery.
customer contracts.
Revenue by geography
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| Six |
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| Six |
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| Three |
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| Three |
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| Months |
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| Months |
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| June 30, |
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| June 30, |
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| Increase |
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| Increase |
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| June 30, |
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| June 30, |
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| Increase |
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| Increase |
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| March 31, |
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| March 31, |
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| Increase |
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| Increase |
| ||||||||||||
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| 2021 |
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| 2020 |
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| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
Revenue by geography: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
| $ | 1,640 |
|
| $ | 1,856 |
|
| $ | (216 | ) |
|
| (12 | )% |
| $ | 3,362 |
|
| $ | 3,615 |
|
| $ | (253 | ) |
|
| (7 | )% |
| $ | 2,363 |
|
| $ | 1,722 |
|
| $ | 641 |
|
|
| 37 | % |
International |
|
| 4,638 |
|
|
| 4,641 |
|
|
| (3 | ) |
|
| (0 | )% |
|
| 9,616 |
|
|
| 9,071 |
|
|
| 545 |
|
|
| 6 | % |
|
| 5,048 |
|
|
| 4,978 |
|
|
| 70 |
|
|
| 1 | % |
Total |
| $ | 6,278 |
|
| $ | 6,497 |
|
| $ | (219 | ) |
|
| (3 | )% |
| $ | 12,978 |
|
| $ | 12,686 |
|
| $ | 292 |
|
|
| 2 | % |
| $ | 7,411 |
|
| $ | 6,700 |
|
| $ | 711 |
|
|
| 11 | % |
Revenue (as % of total revenue): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
| 26 | % |
|
| 29 | % |
|
|
|
|
|
|
|
|
|
| 26 | % |
|
| 28 | % |
|
|
|
|
|
|
|
|
|
| 32 | % |
|
| 26 | % |
|
|
|
|
|
|
|
|
International |
|
| 74 | % |
|
| 71 | % |
|
|
|
|
|
|
|
|
|
| 74 | % |
|
| 72 | % |
|
|
|
|
|
|
|
|
|
| 68 | % |
|
| 74 | % |
|
|
|
|
|
|
|
|
Total |
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
|
| 100 | % |
|
| 100 | % |
|
|
|
|
|
|
|
|
Domestic. The decreasesincrease in domestic revenue for the three and six month periodsperiod ended June 30, 2021,March 31, 2022, compared to the corresponding three and six month periodsperiod ended June 30, 2020, were primarily due to lower service and subscriptionMarch 31, 2021, included $0.7 million of domestic revenue from ourEVRYTHNG for the three months ended March 31, 2022. Excluding the domestic customers.revenue from EVRYTHNG, domestic revenue decreased $0.1 million.
International. The decreaseincrease in international revenue for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020, was primarily due toMarch 31, 2021, included $0.8 million of international revenue from EVRYTHNG for the three months ended March 31, 2022. Excluding the international revenue from EVRYTHNG, international revenue decreased $0.7 million reflecting $0.5 million of upfront revenue on a decreasetwo-year contract signed in services to the Central Banks as a result of thethree month period ended March 31, 2021, timing of program work with the Central Banks, which accounted for $0.3 million of the decrease, and lower revenue from professional services work partially offset by higher service and subscription revenue from our other international customers.
The increase in international revenue for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to entering into a contract with a new international Commercial customer. Most of the minimum contract value was recognized as revenue upon delivery of the software, instead of recognized ratably over the two-year term of the contract, because we had no continuing performance obligations after delivery.customer contracts.
Revenue by market
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
Government: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service |
| $ | 3,522 |
|
| $ | 3,713 |
|
| $ | (191 | ) |
|
| (5 | )% |
| $ | 7,107 |
|
| $ | 7,365 |
|
| $ | (258 | ) |
|
| (4 | )% |
| $ | 3,272 |
|
| $ | 3,585 |
|
| $ | (313 | ) |
|
| (9 | )% |
Subscription |
|
| 300 |
|
|
| 300 |
|
|
| — |
|
|
| — | % |
| $ | 600 |
|
| $ | 600 |
|
|
| — |
|
|
| — | % |
|
| 300 |
|
|
| 300 |
|
|
| — |
|
|
| — | % |
Total Government |
| $ | 3,822 |
|
| $ | 4,013 |
|
| $ | (191 | ) |
|
| (5 | )% |
| $ | 7,707 |
|
| $ | 7,965 |
|
| $ | (258 | ) |
|
| (3 | )% |
| $ | 3,572 |
|
| $ | 3,885 |
|
| $ | (313 | ) |
|
| (8 | )% |
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service |
| $ | 269 |
|
| $ | 179 |
|
| $ | 90 |
|
|
| 50 | % |
| $ | 468 |
|
| $ | 265 |
|
| $ | 203 |
|
|
| 77 | % |
| $ | 348 |
|
| $ | 199 |
|
| $ | 149 |
|
|
| 75 | % |
Subscription |
|
| 2,187 |
|
|
| 2,305 |
|
|
| (118 | ) |
|
| (5 | )% |
| $ | 4,803 |
|
| $ | 4,456 |
|
|
| 347 |
|
|
| 8 | % |
|
| 3,491 |
|
|
| 2,616 |
|
|
| 875 |
|
|
| 33 | % |
Total Commercial |
| $ | 2,456 |
|
| $ | 2,484 |
|
| $ | (28 | ) |
|
| (1 | )% |
| $ | 5,271 |
|
| $ | 4,721 |
|
| $ | 550 |
|
|
| 12 | % |
| $ | 3,839 |
|
| $ | 2,815 |
|
| $ | 1,024 |
|
|
| 36 | % |
Total |
| $ | 6,278 |
|
| $ | 6,497 |
|
| $ | (219 | ) |
|
| (3 | )% |
| $ | 12,978 |
|
| $ | 12,686 |
|
| $ | 292 |
|
|
| 2 | % |
| $ | 7,411 |
|
| $ | 6,700 |
|
| $ | 711 |
|
|
| 11 | % |
Government. The decreases$0.3 million decrease in Governmentgovernment revenue for the three and six month periodsperiod ended June 30, 2021,March 31, 2022, compared to the corresponding three and six month periodsperiod ended June 30, 2020, wereMarch 31, 2021, was due to timing of program work with the Central Banks. EVRYTHNG currently has no government revenue.
Commercial. The decrease$1.0 million increase in Commercialcommercial revenue for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020, was insignificant.
The increase in CommercialMarch 31, 2021, included $1.5 million of commercial revenue from EVRYTHNG for the sixthree months ended March 31, 2022. Excluding the commercial revenue from EVRYTHNG, commercial revenue decreased $0.5 million due to $0.5 million of upfront revenue on a two-year contract signed in the three month period ended June 30,March 31, 2021 compared to the corresponding six month period ended June 30, 2020, was primarily due to entering into a contract with aand lower revenue from professional services work, partially offset by revenue from new Commercial customer. Most of the minimum contract value was recognized as revenue upon delivery of the software, instead of recognized ratably over the two-year term of the contract, because we had no continuing performance obligations after delivery.customer contracts.
Cost of revenue
Service. Cost of service revenue primarily includes:
| • | compensation, benefits, incentive compensation in the form of stock-based compensation and related costs of our software developers, quality assurance personnel, |
| • | payments to outside contractors that are billed to customers; |
| • | charges for equipment directly used by customers; |
| • | depreciation for |
| • | travel costs that are billed to customers. |
Subscription. Cost of subscription revenue primarily includes:
| • | cost of outside contractors that provide operational support for our subscription products; |
| • |
|
| • |
|
| • | amortization of capitalized patent costs and patent maintenance fees. |
Amortization expense on acquired intangible assets. Includes:
• | amortization expense recognized on the developed technology intangible asset acquired in the EVRYTHNG acquisition. |
Gross profit
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service |
| $ | 2,276 |
|
| $ | 2,291 |
|
| $ | (15 | ) |
|
| (1 | )% |
| $ | 4,490 |
|
| $ | 4,345 |
|
| $ | 145 |
|
|
| 3 | % | ||||||||||||||||
Service (1) |
| $ | 1,789 |
|
| $ | 2,214 |
|
| $ | (425 | ) |
|
| (19 | )% | ||||||||||||||||||||||||||||||||
Subscription |
|
| 1,953 |
|
|
| 2,093 |
|
|
| (140 | ) |
|
| (7 | )% |
|
| 4,078 |
|
|
| 4,030 |
|
|
| 48 |
|
|
| 1 | % |
|
| 2,749 |
|
|
| 2,125 |
|
|
| 624 |
|
|
| 29 | % |
Amortization expense on acquired intangible assets |
|
| (1,194 | ) |
|
| — |
|
|
| (1,194 | ) |
|
| (100 | )% | ||||||||||||||||||||||||||||||||
Total |
| $ | 4,229 |
|
| $ | 4,384 |
|
| $ | (155 | ) |
|
| (4 | )% |
| $ | 8,568 |
|
| $ | 8,375 |
|
| $ | 193 |
|
|
| 2 | % |
| $ | 3,344 |
|
| $ | 4,339 |
|
| $ | (995 | ) |
|
| (23 | )% |
Gross Profit (as % of related revenue): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Service |
|
| 60 | % |
|
| 59 | % |
|
|
|
|
|
|
|
|
|
| 59 | % |
|
| 57 | % |
|
|
|
|
|
|
|
| ||||||||||||||||
Subscription |
|
| 79 | % |
|
| 80 | % |
|
|
|
|
|
|
|
|
|
| 75 | % |
|
| 80 | % |
|
|
|
|
|
|
|
| ||||||||||||||||
Gross Profit Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Total |
|
| 67 | % |
|
| 67 | % |
|
|
|
|
|
|
|
|
|
| 66 | % |
|
| 66 | % |
|
|
|
|
|
|
|
|
|
| 45 | % |
|
| 65 | % |
|
|
|
|
|
|
|
|
Service (1) |
|
| 49 | % |
|
| 59 | % |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Subscription (1) |
|
| 73 | % |
|
| 73 | % |
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Gross Profit and Gross Profit Margin for Service and Subscription excludes amortization expense on acquired intangible assets.
The changedecrease of $1.0 million in total gross profit for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020,March 31, 2021, was primarily due to lower revenue.
The change$1.2 million of amortization expense recognized on the developed technology intangible asset acquired in total gross profit for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to higher revenue partially offset by higher costs.EVRYTHNG acquisition.
The increasesdecrease of $0.4 million in service gross profit, as a percentage of service revenue for the three and six month periods ended June 30, 2021, compared to the corresponding three and six month periods ended June 30, 2020, were primarily due to lower costsexcluding amortization expense on Commercial service contracts.
The decrease in subscription gross profit as a percentage of subscription revenueacquired intangible assets, for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020, was primarilyMarch 31, 2021, reflects $0.1 million of service gross profit from EVRYTHNG. Excluding the impact of EVRYTHNG, service gross profit decreased $0.5 million due to lower service revenue and incurring additional professional services hours above the hours that were billable on one service contract during the three month period ended March 31, 2022.
The increase of $0.6 million in subscription gross profit, excluding amortization expense on acquired intangible assets, for the three month period ended March 31, 2022, compared to the corresponding three month period ended March 31, 2021, reflects $0.8 million of subscription gross profit from EVRYTHNG. Excluding the impact of EVRYTHNG, subscription gross profit decreased $0.2 million due to lower subscription revenue.
The decrease in subscriptionservice gross profit as a percentage of subscription revenuemargin, excluding amortization expense on acquired intangible assets, for the sixthree month period ended June 30, 2021,March 31, 2022, compared to the corresponding sixthree month period ended June 30, 2020,March 31, 2021, was primarily due to higher license feesincurring additional professional services hours above the hours that were billable on one service contract during the three month period ended March 31, 2022.
The change in subscription gross profit margin, excluding amortization expense on acquired intangible assets, for the three month period ended March 31, 2022, compared to a technology solution provider, partially offset by higher subscription revenue.the corresponding three month period ended March 31, 2021, was insignificant.
Operating expenses
Sales and marketing
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
Sales and marketing |
| $ | 6,277 |
|
| $ | 4,633 |
|
| $ | 1,644 |
|
|
| 35 | % |
| $ | 11,218 |
|
| $ | 9,879 |
|
| $ | 1,339 |
|
|
| 14 | % |
| $ | 7,945 |
|
| $ | 4,941 |
|
| $ | 3,004 |
|
|
| 61 | % |
Sales and marketing (as % of total revenue) |
|
| 100 | % |
|
| 71 | % |
|
|
|
|
|
|
|
|
|
| 86 | % |
|
| 78 | % |
|
|
|
|
|
|
|
|
|
| 107 | % |
|
| 74 | % |
|
|
|
|
|
|
|
|
Sales and marketing expenses consist primarily of:
| • | compensation, benefits, incentive compensation in the form of stock-based compensation and related costs of our sales, marketing, product, operations and |
| • | travel and market research costs, and costs associated with marketing programs, such as trade shows, public relations and new product launches; |
| • | professional services, consulting and outside contractor costs for |
| • | charges for infrastructure and centralized costs of facilities and information technology. |
The increase in sales and marketing expenses for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020,March 31, 2021, was primarily due to:
| • |
|
| • | increased |
The increase in sales$0.5 million; and marketing expenses for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to:
|
|
| • | increased |
|
|
|
|
|
|
Research, development and engineering
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
Research, development and engineering |
| $ | 4,213 |
|
| $ | 4,208 |
|
| $ | 5 |
|
|
| 0 | % |
| $ | 8,344 |
|
| $ | 8,641 |
|
| $ | (297 | ) |
|
| (3 | )% |
| $ | 6,091 |
|
| $ | 4,131 |
|
| $ | 1,960 |
|
|
| 47 | % |
Research, development and engineering (as % of total revenue) |
|
| 67 | % |
|
| 65 | % |
|
|
|
|
|
|
|
|
|
| 64 | % |
|
| 68 | % |
|
|
|
|
|
|
|
|
|
| 82 | % |
|
| 62 | % |
|
|
|
|
|
|
|
|
Research, development and engineering expenses consist primarily of:
| • | compensation, benefits, incentive compensation in the form of stock-based compensation and related costs of our software and hardware developers and quality assurance personnel; |
| • | payments to outside contractors; |
| • | the purchase of materials and services for product development; and |
| • | charges for infrastructure and centralized costs of facilities and information technology. |
The increase in research, development and engineering expenses for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020, was insignificant.
The decrease in research, development and engineering expenses for the six month period ended June 30,March 31, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to decreased compensation costs of $0.3 million reflecting lower headcount.to:
• | EVRYTHNG research, development and engineering expenses of $0.7 million post acquisition; |
• | increased compensation costs of $0.9 million reflecting higher headcount and annual compensation adjustments; and |
• | increased infrastructure and centralized costs of facilities and information technology of $0.4 million. |
General and administrative
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
General and administrative |
| $ | 9,175 |
|
| $ | 3,081 |
|
| $ | 6,094 |
|
|
| 198 | % |
| $ | 12,668 |
|
| $ | 6,448 |
|
| $ | 6,220 |
|
|
| 96 | % |
| $ | 6,408 |
|
| $ | 3,493 |
|
| $ | 2,915 |
|
|
| 83 | % |
General and administrative (as % of total revenue) |
|
| 146 | % |
|
| 47 | % |
|
|
|
|
|
|
|
|
|
| 98 | % |
|
| 51 | % |
|
|
|
|
|
|
|
|
|
| 86 | % |
|
| 52 | % |
|
|
|
|
|
|
|
|
We incur general and administrative costs in the functional areas of finance, legal, human resources, intellectual property, executive and board of directors. Costs for facilities and information technology are also managed as part of the general and administrative processes and are allocated to this area as well as each of the areas in cost of revenue, sales and marketing and research, development and engineering.
General and administrative expenses consist primarily of:
| • | compensation, benefits and incentive compensation in the form of stock-based compensation and related costs of our general and administrative personnel; |
| • | third party and professional fees associated with legal, accounting and human resources functions; |
| • | costs associated with being a public company; |
| • | third party costs, including filing and governmental regulatory fees and outside legal fees and translation costs, related to the filing and maintenance of our intellectual property; |
| • | charges to write off previously capitalized patent costs for patent assets we abandon; and |
| • | charges for infrastructure and centralized costs of facilities and information technology. |
The increase in general and administrative expenses for the three month period ended June 30, 2021,March 31, 2022, compared to the corresponding three month period ended June 30, 2020,March 31, 2021, was primarily due to:
| • |
|
| • | increased legal, accounting and tax costs of |
| • | increased consulting costs of $0.5 million related to acquisition integration and other corporate initiatives; |
• | increased compensation costs of $0.3 million reflecting annual compensation increases and higher headcount; |
• | increased facilities costs of $0.3 million reflecting non-cash rent expense on new corporate headquarters and office moving costs; and |
• | increased operating taxes of $0.2 |
| • | decreased |
|
|
Amortization expense on acquired intangible assets
|
| Three |
|
| Three |
|
|
|
|
|
|
| ||
|
| Months |
|
| Months |
|
|
|
|
|
|
| ||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent | |||
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase | |||
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) | |||
Amortization expense on acquired intangible assets |
| $ | 342 |
|
| $ | — |
|
| $ | 342 |
|
| > 100% |
Amortization expense on acquired intangible assets (as % of total revenue) |
|
| 5 | % |
|
| 0 | % |
|
|
|
|
|
|
Amortization expense on acquired intangible assets relates to amortization expense recognized on the customer relationships intangible asset acquired in the EVRYTHNG acquisition.
Impairment of lease right of use assets and leasehold improvements
|
| Three |
|
| Three |
|
|
|
|
|
|
| ||
|
| Months |
|
| Months |
|
|
|
|
|
|
| ||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent | |||
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase | |||
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) | |||
Impairment of lease right of use assets and leasehold improvements |
| $ | 574 |
|
| $ | — |
|
| $ | 574 |
|
| > 100% |
Impairment of lease right of use assets and leasehold improvements (as % of total revenue) |
|
| 8 | % |
|
| 0 | % |
|
|
|
|
|
|
The increaseimpairment of lease right of use assets and leasehold improvements relates to our prior corporate headquarters and was triggered upon moving to our new corporate headquarters in general and administrative expenses for the six month period ended June 30, 2021, compared to the corresponding six month period ended June 30, 2020, was primarily due to:March 2022.
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
Cost of revenue |
| $ | 178 |
|
| $ | 196 |
|
| $ | (18 | ) |
|
| (9 | )% |
| $ | 351 |
|
| $ | 386 |
|
| $ | (35 | ) |
|
| (9 | )% |
| $ | 201 |
|
| $ | 173 |
|
| $ | 28 |
|
|
| 16 | % |
Sales and marketing |
|
| 1,550 |
|
|
| 604 |
|
|
| 946 |
|
|
| 157 | % |
|
| 1,990 |
|
|
| 1,083 |
|
|
| 907 |
|
|
| 84 | % |
|
| 744 |
|
|
| 440 |
|
|
| 304 |
|
|
| 69 | % |
Research, development and engineering |
|
| 405 |
|
|
| 402 |
|
|
| 3 |
|
|
| 1 | % |
|
| 801 |
|
|
| 801 |
|
|
| — |
|
|
| — | % |
|
| 507 |
|
|
| 396 |
|
|
| 111 |
|
|
| 28 | % |
General and administrative |
|
| 4,604 |
|
|
| 1,125 |
|
|
| 3,479 |
|
|
| 309 | % |
|
| 5,605 |
|
|
| 2,252 |
|
|
| 3,353 |
|
|
| 149 | % |
|
| 1,016 |
|
|
| 1,001 |
|
|
| 15 |
|
|
| 1 | % |
Total |
| $ | 6,737 |
|
| $ | 2,327 |
|
| $ | 4,410 |
|
|
| 190 | % |
| $ | 8,747 |
|
| $ | 4,522 |
|
| $ | 4,225 |
|
|
| 93 | % |
| $ | 2,468 |
|
| $ | 2,010 |
|
| $ | 458 |
|
|
| 23 | % |
The increase of $0.5 million in stock-based compensation expense for the three and six month periodsperiod ended June 30, 2021,March 31, 2022, compared to the corresponding three and six month periodsperiod ended June 30, 2020,March 31, 2021, was primarily due to the accelerationresult of stock awards associated with the Separation Agreement we entered into with our former chief executive officer in April 2021 upon his retirement, and with the organizational changes we made in June 2021, partially offset by the lower value ofadditional stock awards granted since March 31, 2021, reflecting both stock award grants to our current chief executive officer.new employees, including employees from EVRYTHNG, and annual stock award grants to existing employees.
We anticipate incurring an additional $13,411$20,967 in stock-based compensation expense through June 30, 2025,March 31, 2026, for awards outstanding as of June 30, 2021.March 31, 2022.
Other income, net
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
|
| Months |
|
| Months |
|
|
|
|
|
|
|
|
| ||||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||||||
Other income, net |
| $ | 18 |
|
| $ | 79 |
|
| $ | (61 | ) |
|
| (77 | )% |
| $ | 28 |
|
| $ | 221 |
|
| $ | (193 | ) |
|
| (87 | )% |
| $ | (4 | ) |
| $ | 10 |
|
| $ | (14 | ) |
|
| (140 | )% |
Other income, net (as % of total revenue) |
|
| 0 | % |
|
| 1 | % |
|
|
|
|
|
|
|
|
|
| 0 | % |
|
| 2 | % |
|
|
|
|
|
|
|
|
|
| 0 | % |
|
| 0 | % |
|
|
|
|
|
|
|
|
The decreasesdecrease in other income, net for the three and six month periodsperiod ended June 30, 2021,March 31, 2022, compared to the corresponding three and six month periodsperiod ended June 30, 2020, were primarily due to lower interest rates earned on investments, partially offset by higher average investment balances.March 31, 2021, was not significant.
Income Taxes
The provision for income taxes reflects current taxes, deferred taxes, and withholding taxes. The effective tax rate for each of the sixthree month periods ended June 30,March 31, 2022 and 2021 was 1% and 2020 was 0%, respectively. Our effective tax rate is significantly lower than our
statutory tax rate because we have a full valuation allowance recorded against our deferred tax assets. The tax benefit for the three months ended March 31, 2022 reflects an estimated refundable tax credit to be filed for in the United Kingdom for the 2022 tax year.
The valuation allowance against deferred tax assets as of June 30, 2021,March 31, 2022, was $61,152,$67,452, an increase of $5,513$3,179 from $55,639$64,273 as of December 31, 2020.2021.
We continually assess the applicability of a valuation allowance against our deferred tax assets. Based upon the positive and negative evidence available as of June 30, 2021,March 31, 2022, and largely due to the cumulative loss incurred by us over the last several years, which is considered a significant piece of negative evidence when assessing the realizability of deferred tax assets, a full valuation allowance is recorded against our deferred tax assets. We will not record tax benefits on any future losses until it is determined that those tax benefits will be realized. All future reversals of the valuation allowance would result in a tax benefit in the period recognized.
Non-GAAP Financial Measures
The following discussion and analysis includes both financial measures in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that exclude amounts that are not normally excluded in the most directly comparable measure calculated and presented 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. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Our management uses and relies on 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), which are all non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods.
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. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.
We define 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) excluding the adjustments in the table below. 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 can affect comparability.
We have included a reconciliation of our financial measures calculated in accordance with GAAP to the most comparable non-GAAP financial measures. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps 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.
The following table presents a reconciliation of 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) for the three months ended March 31, 2022 and 2021:
|
| Three |
|
| Three |
| ||
|
| Months |
|
| Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| 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 | ) |
Non-GAAP gross profit for the three months ended March 31, 2022, increased by $0.2 million compared to the three months ended March 31, 2021. The increase reflects Non-GAAP gross profit from EVRYTHNG of $0.9 million, after excluding the EVRYTHNG portion of the adjustment above for amortization expense of $1.2 million on acquired intangible assets. Excluding the impact of EVRYTHNG, Non-GAAP gross profit decreased $0.7 million reflecting lower service and subscription revenue and incurring additional professional services hours above the hours that were billable on one service contract during the three month period ended March 31, 2022.
Non-GAAP operating expenses for the three months ended March 31, 2022, increased by $6.8 million compared to the three months ended March 31, 2021. The increase reflects Non-GAAP operating expenses from EVRYTHNG of $4.0 million, after excluding the EVRYTHNG portion of the adjustments above for amortization expense of $0.3 million on acquired intangible assets and $0.3 million of stock-based compensation, for the three months ended March 31, 2022. Excluding the impact of EVRYTHNG, Non-GAAP operating expenses increased $2.8 million reflecting higher cash compensation costs due to higher headcount and annual compensation adjustments, higher legal and accounting costs related to financing activities, higher consulting costs for acquisition integration and other corporate initiatives and higher travel and conference expenses.
Liquidity and Capital Resources
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Working capital |
| $ | 55,167 |
|
| $ | 74,056 |
|
| $ | 14,419 |
|
| $ | 36,295 |
|
Current ratio (1) |
| 5.5:1 |
|
| 8.6:1 |
|
| 1.9:1 |
|
| 5.7:1 |
| ||||
Cash, cash equivalents and short-term marketable securities |
| $ | 60,950 |
|
| $ | 77,728 |
|
| $ | 19,186 |
|
| $ | 33,326 |
|
Long-term marketable securities |
| $ | 157 |
|
| $ | — |
|
| $ | 5,709 |
|
| $ | 8,292 |
|
Total cash, cash equivalents and marketable securities |
| $ | 61,107 |
|
| $ | 77,728 |
|
| $ | 24,895 |
|
| $ | 41,618 |
|
(1) | The current (liquidity) ratio is calculated by dividing total current assets by total current liabilities. |
The $16,621$16.7 million decrease in cash, cash equivalents and marketable securities at June 30, 2021,March 31, 2022, from December 31, 2020,2021, resulted primarily from:
| • | cash used in operations; |
• | net cash paid for the acquisition of EVRYTHNG; |
| • | purchases of common stock related to tax withholding in connection with the vesting of restricted stock, restricted stock units, and performance |
| • | purchases of property and equipment and capitalized patent costs. |
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and trade accounts receivable. We place our cash and cash equivalents with major banks and our marketable securities with major financial institutions and atinstitutions. At times deposits may exceed insured limits. Marketable securities primarily include commercial paper, corporate notes, federal agency notes, and pre-refunded municipals, and corporate notes.municipals. Our investment policy requires our portfolio to be invested to ensure that the greater of $3,000 or 7% of the invested funds will be available within 30 days’ notice.
Other than cash used for operating needs, which may include short-term marketable securities, our investment policy limits our credit exposure to any one financial institution or type of financial instrument by limiting the maximum of 5% of our cash, and cash equivalents, and marketable securities or $1,000, whichever is greater, to be invested in any one issuer except for the U.S. government, U.S. federal agencies and U.S. backed securities, which have no limits, at the time of purchase. Our investment policy also limits our credit exposure by limiting to a maximum of 40% of our cash, and cash equivalents, and marketable securities, or $15,000, whichever is greater, to be invested in any one industry category (e.g., financial, or energy, industries)etc.) at the time of purchase. As a result, we believe our credit risk associated with cash, cash equivalents, and investmentsmarketable securities to be minimal. A decline in the market value of any security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. To determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the investment until a market price recovery and evidence indicating that the cost of the investment is recoverable outweighs evidence to the contrary. There have been no other-than-temporary impairments identified or recorded by us in the six month periods ended June 30, 2021 and 2020.
Operating Cash Flow
The components of cash flows used in operating activities were:
|
| Six |
|
| Six |
|
|
|
|
|
|
|
|
|
| Three |
|
| Three |
|
|
|
|
|
|
|
|
| ||||
|
| Months |
|
| Months |
|
|
|
|
|
|
|
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|
| Months |
|
| Months |
|
|
|
|
|
|
|
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| ||||
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
|
| Ended |
|
| Ended |
|
| Dollar |
|
| Percent |
| ||||||||
|
| June 30, |
|
| June 30, |
|
| Increase |
|
| Increase |
|
| March 31, |
|
| March 31, |
|
| Increase |
|
| Increase |
| ||||||||
|
| 2021 |
|
| 2020 |
|
| (Decrease) |
|
| (Decrease) |
|
| 2022 |
|
| 2021 |
|
| (Decrease) |
|
| (Decrease) |
| ||||||||
Net loss |
| $ | (23,644 | ) |
| $ | (16,369 | ) |
| $ | 7,275 |
|
|
| 44 | % |
| $ | (17,781 | ) |
| $ | (8,222 | ) |
| $ | 9,559 |
|
|
| 116 | % |
Non-cash items |
|
| 9,551 |
|
|
| 6,027 |
|
|
| (3,524 | ) |
|
| (58 | )% |
|
| 5,436 |
|
|
| 2,402 |
|
|
| (3,034 | ) |
|
| (126 | )% |
Changes in operating assets and liabilities |
|
| 1,607 |
|
|
| 260 |
|
|
| (1,347 | ) |
|
| (518 | )% |
|
| 489 |
|
|
| (168 | ) |
|
| (657 | ) |
|
| (391 | )% |
Net cash used in operating activities |
| $ | (12,486 | ) |
| $ | (10,082 | ) |
| $ | 2,404 |
|
|
| 24 | % |
| $ | (11,856 | ) |
| $ | (5,988 | ) |
| $ | 5,868 |
|
|
| 98 | % |
Cash flows used in operating activities for the sixthree month period ended June 30, 2021,March 31, 2022, increased by $2,404,$5,868, compared to the corresponding sixthree month period ended June 30, 2020,March 31, 2021, primarily as a result of a higherlarger net loss, partially offset by an increase in non-cash items and changesincluded in operating assets and liabilities. The increase in non-cashthe net loss. Non-cash items was primarily due to higher stock-based compensation related to the acceleration of stock awards associated with the Separation Agreement we entered into with our former chief executive officer in April 2021, and with the organizational changes we made in June 2021, partially offset byincreased reflecting higher amortization of net discountsacquired intangible assets, the impairment on marketable securities. The changes in operatinglease right of use assets and liabilities was largely due to timing of receipts from customersleasehold improvements, and payments to vendors.higher stock-based compensation.
Cash flows provided byfrom investing activities for the sixthree month period ended June 30, 2021,March 31, 2022, compared to the corresponding sixthree month period ended June 30, 2020, increasedMarch 31, 2021, improved by $11,740,$10,025, from $6,182$8,133 of cash used to $17,922,$1,892 of cash provided, primarily as a result of higher net maturities of marketable securities.securities, partially offset by net cash paid for the acquisition of EVRYTHNG.
Cash flows fromused in financing activities for the sixthree month period ended June 30, 2021,March 31, 2022, compared to the corresponding sixthree month period ended June 30, 2020,March 31, 2021, decreased by $8,395,$272, from $4,621 provided$870 to $3,774 used,$598, primarily as a result of proceeds from the note payable issued under the Paycheck Protection Program in 2020, higher purchasesa lower repurchases of shares of common stock in satisfaction of required withholding tax lability, and no issuances of common stock.liability on employee stock awards.
Future Cash Expectations
We believe that our current cash, cash equivalents, and short-term marketable securities balances, after factoring in the $58,275 of gross cash proceeds raised from our registered direct offering in April 2022, will satisfy our projected working capital and capital expenditure requirements for at least the next 12 months. We continuously review our liquidity and anticipated capital requirements in light of the uncertainty created by the COVID-19 pandemic.
TCM Strategic Partners TransactionRegistered Direct Offering
On September 29, 2020,April 5, 2022, we entered into a Subscription Agreementpurchase agreements with TCM Strategic Partners L.P.certain investors providing for the issuance and sale by us of 2,250 common shares in a private placement to issue and sell 2,542registered direct offering. The common shares of our common stock and 17 shares of our newly designated Series B Convertible Preferred Stock (which subsequently converted into 1,198 shares of our common stock) for an aggregate purchasewere offered at a price of $53,500. $25.90 per share, and the gross cash proceeds to us were $58,275. We paid a totalincurred $60 of $272 in stock issuance costs.
Paycheck Protection Program Loan
On April 16, 2020, we entered into a Promissory Note with an aggregate principal amount of $5,032 (the “Note”) with Steans Bank, N.A. pursuantlegal costs related to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). offering. The proceeds gave us more time to observe financial market trends and assess the effectsclosing of the COVID-19 pandemicregistered direct offering occurred on the Company to determine the best course of action concerning financing the business. The Note matures two years from the disbursement date and bears interest at a rate of 1.000% per annum, with the first six months of interest deferred.Principal and interest are payable monthly commencing six months after the disbursement date and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Subject to the terms and limitations of the PPP, the Note may be forgiven in whole or in part.April 7, 2022.
On June 29, 2020, we were notified by Stearns Bank, N.A. that the Note was transferred to The Loan Source Inc. (“the Lender”), who will be responsible for servicing the Note going forward, including administering loan forgiveness. We believe that we have used the entire amount of the Note to fund expenses eligible for forgiveness under the PPP, and on September 15, 2020, we filed our application for 100% forgiveness of the Note. Our application was reviewed by the Lender and submitted to the Small Business Administration (“SBA”) for approval on December 17, 2020. We have not received any notification from the SBA on the status of the SBA’s review other than receiving a request for additional supporting documentation, which we have submitted. Principal and interest payments can be deferred until the forgiveness process is completed as no payments would be required if the Note is forgiven.
Equity Distribution Agreement
On May 16, 2019, we entered into an Equity Distribution Agreement, whereby we may sell from time to time through Wells Fargo Securities, LLC, as our sales agent, our common stock having an aggregate offering price of up to $30,000. Wells Fargo Securities, LLC will receive from us a commission equal to 2.50% of the gross sales price per share of common stock for shares having an aggregate offering price of up to $10,000, and a commission of 2.25% of the gross sales price per share of common stock thereafter, for shares sold under the Equity Distribution Agreement. As of June 30, 2021, we had sold 498We did not sell any shares at an average price of $46.36 under this Equity Distribution Agreement totaling $23,067 of cash proceeds, less $544 of commissionsduring the three months ended March 31, 2022 and $645 of stock issuance costs.2021. As of June 30, 2021, there isMarch 31, 2022, $6,932 remains available for future issuance under the Equity Distribution Agreement.
Shelf Registration
On June 5, 2020, we filed a new shelf registration statement on Form S-3 that included $49,265 of unsold securities from our prior shelf registration statement filed on May 26, 2017 that expired in June 2020. Under the new shelf registration statement, we may sell securities in one or more offerings up to $100,000. As of June 30, 2021, there is $97,892March 31, 2022, $39,617 remains available under the shelf registration. The new shelf registration statement will expire in July 2023.
We may sell shares under the shelf registration and/or use similar or other financing means to raise working capital in the future, if necessary, to support continued investment in our growth initiatives. We may also raise capital in the future to fund acquisitions and/or investments in complementary businesses, technologies or product lines. If it becomes necessary to obtain additional financing, we may not be able to do so, or if these funds are available, they may not be available on satisfactory terms. The COVID-19 pandemic has created substantial uncertainty and volatility in the stock market, particularly in the small capsmall-cap sector in which our stock is traded, and has negatively impacted our share price. These factors may inhibit our near-term ability to obtain financing.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
We are party to an operating lease for our facility in Beaverton, Oregon. The term of the lease runs through March 2024, with remaining rent payments as of June 30, 2021, totaling $2,305, payable in monthly installments.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933. Words such as “may,” “might,” “plan,” “should,” “could,” “expect,” “anticipate,” “intend,” “believe,” “project,” “forecast,” “estimate,” “continue,” and variations of such terms or similar expressions are intended to identify such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements, and investors are cautioned not to place undue reliance on such statements. We believe that the following factors, among others (including those described in Item 1A. “Risk Factors” of our 20202021 Annual Report), could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us. Forward-looking statements include but are not limited to statements relating to:
• | our expectations regarding the acquisition of EVRYTHNG and its impact on our business, including our expectations regarding no additional shares being issued in connection with the acquisition except any holdback shares; |
| • | our beliefs regarding the possible effects of the COVID-19 pandemic on general economic conditions, public health, and consumer demand, and the Company’s results of operations, liquidity, capital resources, and general performance in the future; |
| • | the possible impact of COVID-19 on our ability to obtain financing through our Equity Distribution Agreement and the availability of any alternative sources of financing; |
| • |
|
| • | the potential impact of COVID-19 on projects with our Commercial customers and partners; |
| • | the concentration of most of our revenue among few customers; |
| • | and the trends and sources of future revenue; |
| • | anticipated successful advocacy of our technology by our partners; |
| • | our belief regarding the global deployment of our products; |
| • | our beliefs regarding potential outcomes of participating in the |
• | our ESG projects and ESG Impact Report; |
| • | our future level of investment in our business, including investment in research, development and engineering of products and technology, development of our intellectual property, sales growth initiatives and development of new market opportunities; |
| • | anticipated expenses, costs, margins, provision for income taxes and investment activities in the foreseeable future; |
| • | our assumptions and expectations related to stock awards; |
| • | our belief that we have one of the world’s most extensive patent portfolios in digital watermarking and related fields; |
| • | anticipated effect of our adoption of accounting pronouncements; |
| • | our beliefs regarding our critical accounting policies; |
| • | our expectations regarding the impact of accounting pronouncements issued but not yet adopted; |
| • | anticipated revenue to be generated from current contracts, renewals, and as a result of new programs; |
| • | our estimates, judgments and assumptions related to impairment testing; |
| • | variability of contracted arrangements in response to changes in circumstances underlying the original contractual arrangements; |
| • | business opportunities that could require that we seek additional financing and our ability to do so; |
| • | the size and growth of our markets and our assumptions and beliefs related to those markets; |
| • | the existence of international growth opportunities and our future investment in such opportunities; |
| • | our expected short-term and long-term liquidity positions; |
| • | our capital expenditure and working capital requirements and our ability to fund our capital expenditure and working capital needs through cash flow from operations or financing; |
• | our expectations regarding our ability to meet future financial obligations as they become due within the coming fiscal year; |
| • | the effect of computerized trading on our stock price; |
| • | capital market conditions, our expectations regarding credit risk exposure, interest rate volatility and other limitations on the availability of capital, which could have an impact on our cost of capital and our ability to access the capital markets; |
| • | our use of cash, cash equivalents and marketable securities in upcoming quarters and the possibility that our deposits of cash and cash equivalents with major banks and financial institutions may exceed insured limits; |
| • | the strength of our competitive position and our ability to innovate and enhance our competitive differentiation; |
| • | our beliefs related to our existing facilities; |
| • | protection, development and monetization of our intellectual property portfolio; |
| • | our beliefs related to our relationship with our employees and the effect of increasing diversity within our workforce; |
| • | our beliefs regarding cybersecurity incidents; |
| • | our beliefs related to certain provisions in our bylaws and articles of incorporation; and |
| • | our beliefs related to legal proceedings and claims arising in the ordinary course of business. |
We believe that the risk factors specified above and the risk factors contained in 2021 Part I, Item 1A. “Risk Factors” of our 2020 2021 Annual Report, among others, could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf. Investors should understand that it is not possible to predict or identify all risk factors and that there may be other factors that may cause our actual results to differ materially from the forward-looking statements. All forward-looking statements made by us or by persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of the filing of this Quarterly Report on Form 10-Q.
Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. These disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective.
Changes in Controls
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three month period ended June 30, 2021,March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.We completed our acquisition of EVRYTHNG on January 3, 2022. We are working to integrate EVRYTHNG into our internal control over financial reporting, and management’s evaluation of the effectiveness of our internal control over financial reporting.
PART II. OTHER INFORMATION.
Item 1. | Legal Proceedings. |
We are subject from time to time to legal proceedings and claims arising in the ordinary course of business. At this time, we do not believe that the resolution of any such matters will have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. | Risk Factors |
Our business, financial condition, results of operations and cash flows may be affected by a number of factors. Detailed information about risk factors that may affect Digimarc’s actual results are set forth in Part I, Item 1A: “Risk Factors” of our 20202021 Annual Report. The risks and uncertainties described in our 20202021 Annual Report are those risks of which we are aware and that we consider to be material to our business. If any of those risks and uncertainties develop into actual events, our business, financial condition, results of operations or cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline. As of June 30, 2021,March 31, 2022, there have been no material changes to the risk factors previously disclosed in our 20202021 Annual Report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchases
We repurchase shares of common stock in satisfaction of required withholding tax liability in connection with the exercise of stock options and vesting of restricted shares.stock, restricted stock units and performance stock units.
The following table sets forth information regarding purchases of our equity securities during the three month period ended June 30, 2021:March 31, 2022:
|
|
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|
|
|
|
|
|
|
|
|
|
| (d) |
|
|
|
|
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|
|
|
|
|
|
| (d) |
| ||
|
|
|
|
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|
|
|
| (c) |
|
| Approximate |
|
|
|
|
|
|
|
|
|
| (c) |
|
| Approximate |
| ||||
|
|
|
|
|
|
|
|
|
| Total number |
|
| dollar value |
|
|
|
|
|
|
|
|
|
| Total number |
|
| dollar value |
| ||||
|
|
|
|
|
|
|
|
|
| of shares |
|
| of shares that |
|
|
|
|
|
|
|
|
|
| of shares |
|
| of shares that |
| ||||
|
| (a) |
|
| (b) |
|
| purchased as |
|
| may yet be |
|
| (a) |
|
| (b) |
|
| purchased as |
|
| may yet be |
| ||||||||
|
| Total number |
|
| Average price |
|
| part of publicly |
|
| purchased |
|
| Total number |
|
| Average price |
|
| part of publicly |
|
| purchased |
| ||||||||
|
| of shares |
|
| paid per |
|
| announced plans |
|
| under the plans |
|
| of shares |
|
| paid per |
|
| announced plans |
|
| under the plans |
| ||||||||
Period |
| purchased (1) |
|
| share (1) |
|
| or programs |
|
| or programs |
|
| purchased (1) |
|
| share (1) |
|
| or programs |
|
| or programs |
| ||||||||
Month 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2021 to April 30, 2021 |
|
| 53,356 |
|
| $ | 35.00 |
|
|
| — |
|
| $ | — |
| ||||||||||||||||
January 1, 2022 to January 31, 2022 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
| ||||||||||||||||
Month 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2021 to May 31, 2021 |
|
| 18,635 |
|
| $ | 30.50 |
|
|
| — |
|
| $ | — |
| ||||||||||||||||
February 1, 2022 to February 28, 2022 |
|
| 18,144 |
|
| $ | 32.02 |
|
|
| — |
|
| $ | — |
| ||||||||||||||||
Month 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2021 to June 30, 2021 |
|
| 13,799 |
|
| $ | 33.89 |
|
|
| — |
|
| $ | — |
| ||||||||||||||||
March 1, 2022 to March 31, 2022 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
| ||||||||||||||||
Total |
|
| 85,790 |
|
| $ | 33.85 |
|
|
| — |
|
| $ | — |
|
|
| 18,144 |
|
| $ | 32.02 |
|
|
| — |
|
| $ | — |
|
(1) | Stock option shares and fully vested shares of common stock withheld (purchased) by us in satisfaction of required withholding tax liability upon stock option |
Item 6. | Exhibits. |
Exhibit Number |
| Exhibit Description |
|
|
|
|
|
|
10.1 |
|
|
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101.INS |
| Inline XBRL Instance Document |
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
| Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* Certain identified portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K.
SIGNATURES
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 thereunto duly authorized.
Date: |
| DIGIMARC CORPORATION | |
|
|
|
|
|
| By: | /s/ CHARLES BECK |
|
|
| CHARLES BECK |
|
|
| Chief Financial Officer |
|
|
| (Duly Authorized Officer and Principal Financial and Accounting Officer) |
3739