Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the Digimarc Corporation First Quarter 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, it is my pleasure to turn the call over to Joel Meyer. Sir, the floor is yours.

Joel Meyer

Thank you, Karen. conference QX our to call. Welcome CEO; Riley are Beck, CFO, Charles me McCormack, on our with the our and call.

This by On the discuss results. and a business be call today, we QX will XXXX question-and-answer forum. a provide update will followed financial

the our website of archive webcast in will Relations there. section We have remarks Investor posted this prepared our and

specific Before forward-looking to risks the have Please refer factors statements our information let release risk and materially. remind more that everyone cause to me begin, could that we today's contains for press actual discussion that differ uncertainties. on results

Riley will now provide a business update.

Riley McCormack

and Thank hello, you, Joe, everyone.

is drive the begin this, doing goal that everything journey. customers products. to we and with To Digimarc excellently guiding we do. Our accomplish to digitize business along easy truths must simple be their world's These

X to ways market. have distinct going of We

a sales On own Digimarc products upon the direct engine, world-leading by Illuminate accretive side, the number our digitization product our Platform. of growing building

ensuring that solve path to the only because a able frictionless they a to is to not our also Moreover, them but to want them path of are today, problems are brought Digimarc We providing provide customer is existing and adoption problem value which products, means they it products tomorrow. by solve the this solve for that the stand-alone increased solve new just all products accretive, the forward frictionless problems, returns not additional compounds new. us

services number our a our gained own channel product the value-added built and sales quickly to as high-margin Illuminate growing or platform. of and world-leading with VARs revenue the VARs, On side, upon our digitization licensing not scalable by resellers products Platform go-to-market we only Digimarc

are an us number the and opportunities of ever-increasing This our both increased technology. using amount digitized We for of VARs. upsell cross-sell items our and that also creates

from earnings that while I worth were and how a going ago. we these to last much might different These they especially are a where describe we as are appreciate company we repeating, as there short thus our call. are and words we than are verbatim going You recognize words get are just

after discussing our preamble, spent quarter, rest providing few of the the call Last products. I this of a

to time both technologically our do. is foundational because I quite to and discussing spend our we everything literally quarter, Platform Illuminate This want Digimarc commercially, platform

also As built that of This product to allows Illuminate our best-in-class products powerful each X wide product mentioned our comprise ultimately that and allows powers add thus, our benefit platform These Digimarc key our capabilities to earlier, our extremely facts is and contributors success. our value of upon the is each moats them to accretive unique to digitization other. each Platform. from platform and are them it

VAR the company Moving This excited while they simply have of a journey. QX deal. snapshot, X-quarter that our new results, Digimarc signed leader, were their we VAR and a to begun logos majority X-figure Illuminate a category customers, our a and X including Digimarc our both large and upsells is are

value in with they already as their about capacity additional product end licensing are We digitization. customers the on them discussions of educate

Digimarc of by digitization their to and came sign having hyperscaler compete. product VAR they response one powered competitors is us saw another us also product who our in Illuminate QX realization a to need the new that their to Platform

$XX deposit things X critical building million, And return metals, and today, of the recycling. deal are course, There precious about protect of national I deal to this highlight. for announced Illuminate the DRS there's system then, we contract or Digimarc a authenticity X-year materials, want to a

on is its ability this terms and targeted VAR in a Platform in First, the X newest of Digimarc component deal, deal a their X rest the products, their of is revenue the Charles at to fashion markets which our the of products, confidence license about for detail give occur our rollout to wonderful as of of contract of I end their a of for in key year. a platform duration. each will will staggered in products in X-year They each more our confidence of ability mentioned. size use but course, this a build and just which of customers' of Illuminate X bit top both our this the in calendar platform. to Due signed provides the minute,

them scoped products. capacity dollar of the journey. additional to to the amount. different it their increase in needed by X as headline this product even upside the beyond upside products other in these likely additional of needed meaningful are areas, contract such be comes the because product, or if product to of amount amount X this and for of were is far We upside a is contract At risk the provide opportunities from launch there Digimarc to beyond shared the continue an This partner be within customer. to any the $XX One increase with our million. there an fourth are understatement, along they Second, to excited of capacity view valued we believe proceed, of enough

lot don't one X of our a the Banks all protecting the business last a talk of unique building just the a absolute with we the XX and security can't not the as commercial across is as enjoy. with market security our wide and where we amazing any the especially represents credibility, of use history first do. they commercial and printing, of of enter the provides moat precious products we printing platform, while printing as and in But for expertise greenfield of Central authenticity in and as work is We one talk this one deep the market. protecting opportunity us the authenticity side for lot have moat team Third, reputation platform working excellence us the materials, but we other for working team's of of activities metals about of our that earned the because Banks world's team critical Central a about our capabilities these years. deal, world covered the the by our security The this the our

by this the deal, important integrity national represents third an deposit exciting into product a return Fourth, one guarding new system of the and market our the entry covered adjacency.

more help with ability doesn't Recycle. Our power begin world and to end circular a Digimarc

entry to it planet. the recycling, more overall quickly allows has in Our of implications; Digimarc profound It our provides into growing the DRS and impact an to market versa, on benefits TAM it even opportunity X and us make synergistic vice our important Recycle increases

Fifth, with and to sustainable materials We product's journey precious highlight safer, the powered purpose. a perfectly critical prosperous, building more Digimarc aligned world. Illuminate metals, X trusted our intelligence DRS and products being promote by provide

always Our greatest will has strength always be been, our is people. and

that of X. lot I drives their to a covers a belief personal note, our them this and is it it For purpose excel. find deal pretty all darn On our team, single cool

now financial to discuss our to over will the call Charles I results. turn

Charles Beck

you, Thank everyone. Riley, hello, and

our new I dive the contract financial on Before revenue the Riley financial more of I mentioned. results, want into QX large to impact some provide details

on additional customer As minimum X products if a per annual each they more value term capacity from year the the Platform. contract the The contract reminder, contract spanning our with provides payments for is years. million a require X Illuminate Digimarc $X

each was quarter to different million platform the the and $X.X of booking April. be ability commercial with as second the payment customer start will products, our contract in first-year its for use each dates. in provides The signed The X dates the contract

of when a of $X are fee XX-month the given payable the timing of annual not but first the payments effective the date. is $XXX,XXX fees of due, bookings. As the do result, initial year noncancelable after are they definition million the contract anniversary meet These

underlying note all and reported The be a years of of business the signing show that to but to multiyear report year deals bookings quarters as in this has way we metric. value remaining our reported fact understanding been booking important growth we It's reported booking you. heavily This that a will are are calculate $XXX,XXX up cost at subsequent the and reducing not in would. deals a first for we the is a trend wonderful to first the number more of our of it our due more number, as committed never whereas a renewal pursuing, multiyear comes out year

metrics additional our rate. better that will true growth capture to the in evaluating are We future underlying share

important to financial There want on QX our deeper. results. X I to trends highlight are Now before digging

growth During generated revenue XX% realized the products. gross profit on subscription current expenses. reduced our subscription first we and our recurring significantly quarter, XX% We we margins, operating

we As significant we result, expect to level cash in a the improve which usage, to year. continue through the a of reduction saw

related to Phase quarter is year year million last included former bookings QX project Intelligence $X.X work now Piracy during to compared Bookings $XXX,XXX related HolyGrail for to million First were which the $XXX,XXX last in QX and commercial complete X, in year. first product. our $X.X

$X.X impacted the bookings The QX one-off year with in also been X sizable first items, that X-figure timing early this renewed year. these million last upsells. in QX, commercial Excluding contracts have instead we renewals of year QX as in both contract would of had year-over-year two bookings trend

$X.X from year. $X.X QX for of X% revenue last was million the quarter or Total increase an million, in $XXX,XXX

of X% $X.X from $XXX,XXX Subscription mentioned, Intelligence Excluding revenue, I for for increased increased revenue just quarter revenue of to revenue accounted for XX% Piracy actually grew XX% which from sunsetting our XX%. our former $X.X product, total Adjusting $X million or Piracy Intelligence the revenue million. or year-over-year. the product million subscription

second the of XXXX essentially As $XXX,XXX, a went revenue Piracy in after was it quarter X. that, reminder, Intelligence but to

rates headwind away the of in second this will half year-over-year So reported to go growth XXXX.

Banks work a XXXX, project in X% million. Service both higher larger to $X includes is from due XXXX to million revenue Central and project rates from billing The for $X.X than annual dollars. budget grew which the increase

Banks from service revenue from Central last We year. XX% the this over grow year to expect

in two to this The XX% from trends. last improved year-over-year large positive in year margin QX increase year. reflects profit gross Subscription QX XX%

carry First, a our products. our margins profit of higher legacy to favorable revenue which gross products, mix newer than subscription

foreshadowed product are call, by usage we as costs infrastructure on on increased declining, platform. earnings with customers our the our even last Second,

subscription margins. expansion these expect trends gross to our in We resulting profit further continue, to

call, we XX% growing north an revenue. on in to nearly our note with are development our expansion. we for the first margins focus On I This XXXX. subscription earnings to profit expected stated given gross room margin drive important there continued quarter, last the is to After subscription of

lower in professional We mix. operations function to The Service some year. profit remain since reflects improved in depending service margin acquisition going services quarter. costs this forward in have on fluctuation gross as January gross year mid-XXs with QX XX% year. quarter-to-quarter XX% our increase on labor in anticipate streamlined profit the this the to we last average QX margin from last

as costs million was expenses million a million operating result Operating year. our onetime were in restructuring Included $XXX,XXX this compared of of severance February. stock and expenses million compensation $XX plan of QX in past last $XX.X cash quarter a $X.X $XX for to the costs of announced previously the

Excluding expenses year. onetime these QX million operating representing decline costs, been $XX.X last a would from XX% have

year and you costs compared As the included to to well as last as integration as costs related EVRYTHNG QX than acquisition higher will headcount-related today. recall,

last Non-GAAP QX compared million the operating of expenses to $XX severance $XX.X year. February million were onetime plan. in quarter result Included million cash the costs in the of $X.X as million for a restructuring was $XX.X

been expenses million, Excluding QX an XX% year. have would the onetime costs, last decline from non-GAAP operating representing $XX

As those the million completed, costs. million our been approximately expense of of $X.X cash-related will result savings has annual with being business, in of a which now reminder, restructuring savings $X

organization. costs to the be to efficiency on continue non-headcount-related greater reduce further our We and focused across ways drive

new to technologies in greater new working leverage provide streamline investments and without are scale headcount. make our We material to to processes having for

$X.XX $X.X loss excludes in cash though, for in which share, million year. $X.X to $XX $X.XX $X.XX with QX last versus $X.XX million share the last versus noncash We Non-GAAP and onetime last the We in the Net used was loss and net common in ended nonrecurring quarter $XX.X million costs. million quarter is year. investments. $X.X investments during was million the items, in of per quarter cash per QX compared year. of severance cash QX Included

on that decline last would as have usage revenue to $X efficiencies. considerable in million, reduction cash year. our a cash usage operating anticipate trend costs infrastructure XXXX from costs, focus continue continue product reduce will cash to the We onetime the in of we been grow and continued usage our Excluding

please results further of be that our discussion Form the business, prospects with risks XX-Q our For SEC. will our for financial and filed see and

the now for final Riley call over I turn to will remarks. back

Riley McCormack

in to their that and realized Thanks, the Charles. end to possible I rings how word might I that thinking with quickly it how the have the In is made call, possible, dedicating one have world. our to about wanted would by in last question true rowing focus recent also going I could last still also platform, and inverse being the true by aligned our direction, ended message products, word. incredible is all possible, I realize same similar this on the an call prepared This remarks what's today's concern leaving proven for on unfounded. talk team but call consistency events it changing been

beyond. this it, for what build ago that a emphasis continue the key am just and excited set reiterating end are us months I like XXXX I XXXX one last few we going I to ahead and with emphasize enough didn't years time. foundation the said to perhaps just upon on I foundation area, began call added saw to in

to areas to opportunity that are unique has large, momentum to positioned increase momentum than are all across and work we market as that create seeing tool. a market years lead of hard legs are business larger, continuing -- we transformation as to is that at our We for the if the come. the of A uniquely be not other digital scale at that

of digitize the Digimarc into products items each year of each products. value trillions sell we is goal are exponentially adding world's to and accretive produced as multiple our them, There

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

Operator

And Rhee Craig-Hallum. Instructions] our [Operator question Van we'll from take Jeff first from

Jeff Van Rhee

with a in but you going to go the similar that in Because Maybe but some cases? are just more start similar. ways, each pretty on you What ways X little cases. there doing deeper. are Several, mean, lot I obviously, these hit in a not Riley, of here. them quickly, use

Just each deeper cases. about in those doing little you're talk of exactly a what use

Riley McCormack

don't is talking metals then part critical extent similar. customer too the are like to I But precious to Yes, the to And the products about Customers of the sure. would really those be using on it authentication and will much on when -- obviously, packaging items And DRS, DRS a that the we we system. Illuminate can, Illuminate the product us it. digitize materials, protect comes items. and building it's It's using to authentication. of

Jeff Van Rhee

Is this individually package each individual about are generally identified packaging, or just -- serialization, speaking. when you protect is talking authenticity, you so say

Riley McCormack

familiar in Illuminate, exactly the access capabilities again, their they're own of all using doing. VARs of don't wonderful go so if a really own want of what to that Illuminate I take Illuminate into to advantage building could and those our products. There's in lot to any of their you're have with they're products build capabilities they capabilities.

Jeff Van Rhee

terms some that's contract terms ratable? could Yes, the what is appreciate I to but rev you this going maybe challenges. be Charles, unclear. the in the the requirements. Yes. forgive was of but It's very it rec, of privacy in revisit then me, of diverse I And does, itself,

the but the said recognition the about You bookings bit a and bookings, on little the collection of I'm cash and the recognition. curious revenue

Charles Beck

Yes.

though, points that in time. now. I products, different there recognition ratable So X we're generally at suspect working start the it's right revenue would be that to are going through different

and $X are projects cash. year So to the of take that's with each of outside just meet going first the first of the be phased the therefore, $XXX,XXX our falls -- take there it and you're ratably booking... contract of definition the that's cash products And a because the XX the and of million months from to able doesn't why not same

Jeff Van Rhee

Okay.

million year comes $X.X so in case. in expect of So X? I $XXX,XXX the cash

Charles Beck

those Correct. revenue products will come And as then ramp online.

Jeff Van Rhee

are model. approach -- these layer in? Okay. us going we've And How you when to obviously, do the I timing build we on time that? sense some of to lines got mean, Can give the X

Charles Beck

in is year. majority the being first the it Well, paid of

-- all of within starting So are products the X it's year.

Jeff Van Rhee

And... right. Al Okay.

Charles Beck

year. X than less Or

Jeff Van Rhee

Yes.

then, are it. but mean, is. trying obviously, exactly the these is, Got This pretty know, use not like And don't I their to diverse what you're there know, just naming I similar customer. unique practice I'm are a I VARs VAR, to how don't cases. other this? Okay. many understand

Riley McCormack

packaging ecosystem, touches the us. -- creates VAR is who potential -- a has who product Anybody for Jeff,

of to talk even yet. that So out ton VARs we there haven't there's begun a to

Jeff Van Rhee

Okay.

just $X million to is... be roughly Okay. And year a clear, the

Riley McCormack

I to a items of I’ll leave ecosystem, ton. think at right? are about year. want up. trillions a broad trillions So there’s just every that yes, – there those mean Each you are with that. of And it might produced and follow something produced

Operator

from Montgomery. And our Janney from we'll [Operator Instructions] take next Knipp Robin question

Robin Knipp

Great Are quarter. you which to with any able us as country for share deposit referring to? more this to national insight is system recycling return

Riley McCormack

share, we what can we've No, shared unfortunately.

Robin Knipp

Okay.

the world my a So plane Digimarc staff. on travel and got get with to

Once Thanks. great Okay. again, quarter.

Operator

Advisory. And we'll Collard our take from Matt next PCB from question

Matt Collard

you Riley, with Riley. -- these bit Charles. VAR the Could for of Great little could maturing a you talk quarter. Congratulations. relationships.

last signing the activity And them. obviously, sign the of spike. to continuing started the to you're tone it them You sounds year from continues and call,

So And with in the there interest VAR Digimarc interested in service products lot Or these and a I it how don't enthusiasm like enthusiasm is how enthusiasm? have then -- going in I their top there I'm is this their what the you just deals how Illuminate is addressable -- that or mentioned I'm on I'm how minimum discussions, seems where see changing? contracts, offers to that. or growing. of is trying markets these guess of

Riley McCormack

packaging mean have And it's of the some it's right? known, likely to right? them candidates Yes, we are full-time what so -- people have we're currently a I building a most VAR it's Illuminate, Illuminate, publicly you about space are These and in that our in hyperscaler. if the in what ability think growing. job,

used I I the the remarks purpose. on prepared think word hyperscaler during

as most AWS of of CPU digitization a -- hyperscalers. memory as think hyperscalers people -- and people as hyperscaler. think your I product an We're

outsourced reason, whatever platform invest for but realize for products want or to where build interest digitization the products our or capacity the of of produce They trend. packaging, product great on partner like or the top Azure build platform can services anybody and and have We're they own produce is in it. a don't who to can theirs. platform this their own a GCP AWS just license and people don't license their For or

it's for Q&A I in actually, for it's last I us, mutually discussed but great the call, the of Matt, the I it win, think Actually exciting. and beneficial a excitement, last and the call bit, and in a the So customers. win, win. little talked pretty on scenario you VAR for it's end

Matt Collard

the is be looming, like you of kind VARs guess it And and the build the we've looked coming versus from legislative recycling producer as to and for HolyGrail where support end thinking like if I it got obviously, VARs at But extended that all responsibilities Great. need are different to this much effort there'll seem different solutions all for towards shareholders that some seems doesn't you that, on with all game? towards enthusiasm challenges will, looking historically, much were and ahead propositions, we endgame that. the

Riley McCormack

Yes.

on built we’ve product a platform. is our Recycle Digimarc So

taking to build do. we again, capabilities, back, our use So build contains product just what our internally VARs the Everything we own of or platform Platform to step services. our a Digimarc to We and quick license all either services their right? products that’s their right? Illuminate own can –

So Digimarc something is we That build. a be to we’ll world’s offering and brands that directly the retailers. product Recycle is that

bit direct talked brands to right? our products our they’re different – VARs the So little reselling last and our they’re the our retailers. and world’s a We not sell Where products. call, platform, license I in

Operator

our we'll from take [Harvey question next [Operator Instructions] And Mordka].

Unidentified Analyst

large a we that in our have the Is far us taking extensive the acquisition? an there low as price anybody and at as right now share moat patent look on library? Based

Riley McCormack

the time same call, is answer every The think no. you I on you're asked question. Harvey, the

Unidentified Analyst

Nobody is looking yet.

Okay.

Operator

Van from take another we'll And Rhee Craig-Hallum. from Jeff question

Jeff Van Rhee

How the terms burn the the numbers we in and some expectations. around of cash cash put you think that? should burn? You about remainder of year commented Can on the restructuring reduced

Charles Beck

Jeff, mean, about is margin rate revenue, run give don't got different... got can million of are Yes, what right? got we've expansion in $X I we've I So we've we broad lower kind the exact guidance Those OpEx. do and strokes, growing

Jeff Van Rhee

What's a Riley, does you on platform. sell they have you product build the then -- And to can Okay. sell can look This extent VAR the VARs, is to go platform the commented to you build like? something to applications. the what yet, or that

Riley McCormack

the GCP compute to what think each for It and right? hyperscaler outsourced, -- depends picture and It's and Azure I relationship, way people, offer maybe memory. It's is AWS Jeff, best right? it's just for picture on a

intricate on top And and some build build and of people products very some really, people really little. those services

So it really and products the that VAR they depends the build. on want to

Jeff Van Rhee

standpoint, this but margin licensing then a is know VAR from I selling other. just the -- deal. the any and you're not pure if then to you're of the a And this providing service, I think Okay. There's no answer,

gross So this should margin? be almost pure

Riley McCormack

mean there’s I obviously Yes. costs.

times, as But are These customers cost wonderful goods building about channel. – meter it’s there’s to, hundreds we So ramp, our right? The ability and the well, of nice out of a high is But VARs out you’re a of the have out that that right? margin. but to we right. roll platform they things among the a about is and our meter lot to lot they’re access also internally platform. of it way going are the go-to-market thing sold access, we quick VAR, of – hundreds channel extremely something So have them then to VAR they’re

Operator

question next our from [Kevin Hanrahan] KMH. take we'll And from

Unidentified Analyst

question XX-K had the I a recently. Charles, did know your about NOL. you I

if update number, that us? number you give offline? could could you it, you don't If you have have that me And

Charles Beck

Yes, you have so also don’t I know. the number memorize –

Operator

no I'll for this be at closing floor Instructions] Mr. questions further McCormack to And there the back [Operator appear turn to time. remarks.

Riley McCormack

and day. Well, you, great Hope care. Take thank your Karen, you thank have of everybody. rest a you,

Operator

and participation. Ladies this for does Thank thank conclude you. teleconference. today's your you We gentlemen,

have a day. and You this may great lines your at disconnect time,

Joel Meyer	EVP, Chief Legal Officer, Compliance Officer & Corporate Secretary
Riley McCormack	CEO, President & Director
Charles Beck	EVP, CFO & Treasurer
Jeff Van Rhee	Craig-Hallum
Robin Knipp	Janney Montgomery
Matt Collard	PCB Advisory

Digimarc (DMRC) 10 May 232023 Q1 Earnings call transcript