Earnings call transcript Q2 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, greetings, and welcome to the Digimarc Corporation Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joel Meyer, Chief Legal Officer. Please go ahead.

Joel Meyer

Thank you. 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 will this in we Relations webcast section We have there. remarks Investor posted archive prepared our and

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

Riley McCormack

begin direct QX fronts, in excellent business customers you, With and our to mantra, this I products. massive with our along on are to important guiding Thank journey. help to digitization few Business massively added their highlight at Doing Easy business. strong portion to vertical a our industry combat on this quarter focus counterfeit want the was of to and issue large expanding a customers hello Starting doing testament work pharmaceutical in Begin side hard on of We and with many the of flywheel everyone. and maniacal Joel product easy two new the a the being wins

to confident to thousands, for growing others. wins on that working that have on on a differentiated solution many just not and but internal global We high-value are scalable of also involving of to other word we closed as if just and to truly the Based deals nor together top the our to automation provide divisions opportunities very benefit are a hundreds, not provide partners automation out, our sandbox necessary low-touch and CPG version quickly importantly of with gets XX would can’t two same. these factory two we we research, companies separate wait the the platform initial also pipeline from a factory the solution of ecosystem our pull

On $XX we we a two the VARs, new contract ago. few plus the months large channel announced added side, including million

high borrowers in unique relationships solutions customers. both provide as and Illuminate’s our to that allowing have will we prove to value their differentiated Digimarc We expectations own grow

In squarely large of the the addition, public our deal borrower put announcement industries printing has radar. us security on

position conversations with decades of of early in Central not space which This new and opportunity. based this by world’s best Banks. in to capabilities are with each digitization the on also sizable just industry We hyperscaler, unique but reputation Digimarc’s represent over as prospects, the we two further value product validates gained hard-earned two a enjoy the Illuminate’s this World delivering well-deserved

issued an In a day return proposed space, we country. major received addition to to in opportunities to printing after a security press us a we deposit the system planning full-day invite release, the the in opening that session for program

more easier, quo. We ability is provides are DRS and believe a in and in our the market platform cost we on the Illuminate our more effective offer solution comprehensive DRS the as our status to focused opportunities expanding VARs that

to VARs. annual X part guiding important customers that Four and two our the portion journey resulted technology of multiyear signed in of and the extensions our product customers As of revenue, of other our were mantra, a recurring of a with the customers team. power in along are in renewals excellence the increase meaningful we these digitization X direct QX, which testament

global including their Walmart. supplier is top to usage contract in a renewals, had to key two ramp X addition CPG structured were contracts customers these pay-as-you-go we model, significantly also whose under also legacy QX, that In the a up

have to two the All strong which we to contribute key metrics help assess. of in results above by the financial

piracy While more XX% and end want when life a in for adjusting I of Charles highlight the elaborate revenue of up subscription will year-over-year XX% intelligence. to moment, was

XX% strong we to add to our In expansion subscription best-in-class sequentially to ahead incremental further XXX high subscription revenue addition from with continue subscription growth, basis remove gross costs margin as revenue. platform near a expanded and margin points

grapples I of take Yes, companies widely over know being to a and the preparing our and significant has and many from the Charles, of the have front the knowledge a we does of dangers technology generative same. Vanguard with Before the mind question largest soon-to-launch our is turn role opportunity governments play I to opportunities the call been learnings pioneer to answer investors. for by world’s as to to want AI. this I world Digital the been it both have busy as of wonderful conclude see all and recognized the And comes that our offering, Watermarking, informed of some

various the X the governments conclusion, the act convened take at companies applaud Gen to are most the steps. House in including recently, White also request AI leading and We who committed of this of moving specific AI voluntarily who companies to

additional need stakeholders also models single input obvious value themselves. both and of that believe safely the biggest the to to the on. A broadly. beyond and secure a one head the an these We but robust, world addressing not fairness view today, coalescing safety ensure and problems dangers we are no to there The digital be transformational and turn. and will for power only is the focus specifically on its more the unlocking to how easy seems Gen begin share in more story while solution uniquely and require anxious to to of authenticity AI to and and accomplish adopt how for to adding two each positioned securely of that and I the media around are Gen of But problems that show-stopping view of Gen AI of to need in in excited want provide telling world AI can potentially bigger achieve help solving world we

a creation no that a for is asset step, that AI-created serious digital the Regarding the for and reasons. world easy, media need cheap, where Gen of the first action, fast tagging of proposal the to the solid current reason digital ensure the it four digital while output shows in authenticity all taking won’t other AI companies the authenticity solve ensure following to about of it how are media problem of Gen if is

which should Gen every as authenticities will AI done watermarks to simply authenticity the built counterfeit putting Banks current if Central here. system some, on the same company have Gen the to created of World unless little potential First, reasons, counterfeiter future, rely of were word every applies fake output, to The its currency. do suggest currency alongside digital on would prove Intuitively, we for tagging an the and one content many no it impossibility AI none. by applies protect help is the logic their

by of to the output only Second, Gen be advent and legitimate whether the produced method of with digital a Gen amount digital creation of creation. improve AI how a editors spellcheck, productivity an AI nefarious already of one is uses the or there help incredible the is creators infancy. will tool others and we, legitimate that was, a Gen the professional asset and AI. solution of in which will by value output of improved assumption generational copy incorporating are work Gen creatives believes is digital truly not that tools using with that being what matters frivolous the with potential its Similar Gen by AI content along an rests Gen AI source is created its still assets assumes of watermarking was disagree, solely of used on it AI, many with the should

and authentic this and the X authentic scenario of assets consumer often than just that comfort. deal, doubt, provides are content an to authenticity its about a appears but a Content and item. it matters great claim. of context created used a because and authentic authenticity otherwise of an image context authentic illegitimate with website potentially Third, worse the the content inauthentic reseller, such in a in false odds, used certainty without place increasing native dangerous an sides of Context when lacking a by was non-authorized why purchases digital is or mistakenly as sense a same medicine matters,

Gen digital involving a is same security. lines many their gives on potentially the anyone rely keys source security companies network and assets. don’t open including applies logic which inspect, to codes, engines of business essentially a build to reason technology, comes finally, technology, source with why those authenticity around understand ensuring of There the AI and even it And system edit lines test when open

and fair have that trains the The reasons, need must adequately of For authenticity watermarking content these an addressed. the not will AI immediate these be Several crucial there’s needs groups of created output these also safe world safeguards. another for engines. Gen issue ensure digital content. Moreover, that filtering simply

and fair spent exactly copyright have an First an This creatives talent, amount their are law who is companies incredible to money it in world. these effort the without trading and having Without assets. cases, exists AI time, and around and why isn’t digital create the countries many the isn’t become of to filter, engines a safe of input in That automated input fair simply have assets Gen legal. say. the free owners copyright

lawsuits risk allows AI overwhelming avalanche copyright Gen the legal the comply and are that only alternative as they being their needed sheets bring. to to well a solution the or themselves. growing the them need world They engines with Second of gains, teams technology powerful companies productivity unilaterally the input will their of law will balance considered, their train and the deprive as restricting their useful exponentially

multiple also the in along different quality worthless. infancy filter applies AI namely too. assent GIGO, world out, In model output because to of will still and range without of of until of universal Gen companies ever existential vectors, garbage the at the suffer automated in of risk, Law to AI models decreasing The the in Gen way the garbage an addition, face quality the second input collapse a its

model And much our risks, two more efficient our pictures be a than in of in the children also Gen the finally, applied. the game processes first third ways were could the input group a being group permission. filter automated our as all beyond that billion monetized for And alone is identification knowledge, to from comprised these stakeholders applied combined, AI let training robust being current such and our much two allowed with multiple memories, larger X used made people, stopping without over were of

soon few the AI to House that single offer the a A on highest expense coming out the extensible upheld benefits adaptable for allows be statement that. agree. out Gen and for to lot citizens, rights confidence Americans and the Extend system White this statements are wholeheartedly filter an a doesn’t the and adopt that allow innovation to of whole One come at topic a will safety. that weeks we ago of ensure was Instilling and excited a country of all, must all that world in authenticity and system we more. – content standards

role and brightest Internet itself. solving applaud that yes, that, foundation benefits some, understood and Digimarc unrivaled instinctually the In system provides and all. importantly, meaningful And will the they’ve upon to powerful watermarking, digital the We address that shown of deliver authenticity, legacy expertise solution excited what our technology a in safety the act have play for prove role protection to both experience minds this rights, have most world, that in set at to to them our technology willingness private addressed to to problems the hand. some advancements we of security, to in sectors a have will spanning likely be a be must power. the the a problems build in and a the unleash to due play public are they has since

launch, for work have already some and thankful excited ahead finish positive are we the incredibly the to we doing As reception up been are stakeholders important we receiving unveil of more with the are we soon.

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

Charles Beck

hello, everyone. Riley, you, and Thank

million to emphasize. and are subscription dive our as QX these products. hard into financial than that We business closed drivers some $X.X our we to burn to gross We operating highlight are revenue highlights XX% in up they XXX% there work bookings, get achieved We reduced more I profit expenses growth first important results, current year and last I commercial from margin, XX% profitability. subscription Before from delivered financial significantly are year-over-year. as deeper critical areas year. we the cash and year-over-year

Now to details. on the

QX First last $X.X the bookings year $X.X commercial in Xx were compared a second year. during increase million quarter, booked to million when the

to we have upsells stages we of as As earlier important one this growth growth some revenue Riley from usage very from cases, runway was of meaning new a customers products. customers. opportunities mention the of in expanding customers. large most are in These existing source to and grow These for revenue and/or mentioned, penetration, these we the to upsells are account lot materially products of come existing existing adding have can

While only commitment. sign but not an levels these higher encouraging unexpected, was at to see do not to of it contracts, their renew customers so

impact only to and would that also number. highlight It’s many quarter for would because not multiyear contract if further next commitments. the instance, for Years deals. bookings a total we bookings, the first have deals The To is a would year’s bookings important never fees contributing X-year these captured. this however, revenue that contract, committed be Because of this I committed point, quarter higher signed first context if is annual ever the showed we multiyear bookings contract up. of reporting in this report X were true only we of for been value to much impact the reflected X year included show contract, our X this years. multiyear

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

from increased year-over-year. XX% revenue end-of-life revenue $X.X or our Intelligence million product, Excluding piracy

XX% QX headwind million the of meaningful year gone. from is year-over-year for of last this for $X.X As quarter revenue, the a Subscription reminder, $X.X so revenue, last XX% and growth grew million. Piracy revenue was to accounted quarter now which total Intelligence to optical

excluding – Our revenue goes growth $X.X Intelligence. away was Again, away Piracy this rate goes XX% when subscription starting in million headwind headwind or this QX.

work, impact to budget Grail $X.X deliver the Service year the X%, million impact annual Recycling revenue project revenue reflecting increased of million, of this service our this declined banks project the business non-recurring to $XXX,XXX for excluding XX% $X.X work The from of $XXX,XXX. expect project or currency last work central year. reflecting still in from growth year. Holy this larger the We double-digit QX

our would improved gross in foreshadowed large Subscription year. this The year in positive to and margins profit we year-over-year into continue reflects and occur on to QX QX trends next from margin XX% year increase QX earnings two that last start this XX% year in beyond. call

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

our costs even infrastructure increased Second, by our with platform. product on usage are customers declining

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

on depending be anticipate important year, labor Holy realized impact on costs profit Grail to development the company in given expected as last going subscription from quarter-to-quarter year know This projects QX margin gross in forward Recycling on higher is year. and fluctuation with in to this from not some QX repeat. an mid-XXs work in which our to We XX% QX some The focus we gross are reflects average profit service mix. year of this to decreased QX Service a in decrease the last margin revenue. growing XX% project

$XX last Operating million We during the expenses year. reflects force to $XX.X $X.XX million $XX.X Non-GAAP impact The for QX year. compared in QX $XX.X this quarter with in QX year. ended the operating million to used last to year. large year. cash the million the in and in which million February, cash non-cash this $XX.X decrease last cost-saving the operating per compared quarter of $X.XX items, quarter and quarter non-recurring Net implemented for last the quarter with other expenses initiatives in along was $X.XX million in of were expenses $XX.X the QX in reduction compared in for past loss versus Non-GAAP and in share investments. million excludes investments $X.X was We per loss QX versus share, net last year. $X.XX QX were

was unfavorable going usage cash anticipate negatively for impacted than results year, also while our higher lower costs, we quarter, forward. quarterly by customer revenues lower much the in much reflecting Our seats. It last of and than timing was higher

for period XXXX, X half be alone. the than total X-month For the our in cash second noticeably we months usage last to the of expect amount cash used the we of less

to As we generation. cash sustainable flow a building extremely focused be have business stated high before, capable we on continue of

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

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

Riley McCormack

to Thanks, their were successful Charles. begin but QX easy digitization not was both On a with, at just strong journey. guiding we customers business doing along the also being and channel direct product excellent front, quarter. in

seeing of continues by gross As strength momentum and a another we metrics promised two obsess XX% areas across near the and today, points financial are up XXX current the statement which call is products in that margin last growth of income we and best-in-class showing with our quarter’s a year-over-year at from business, sequential subscription addition and basis end our revenue of XX%. key subscription of to all

was, a our to present, cusp on us add however, will show our going past more we we QX of hyperscaler, unlock digital unparalleled also most But in continues product because of domain excite is as where strong of we world, future. that to extending delivery the to are the to hour transformation which what beginning the a results fully of and the of our to digitization combination our world-leading are opportunity the generational are

open call questions. now for will the Ryan

Operator

ahead. Needham comes of & from with the Thank Please [Operator Jim Company. line you. go first Instructions] Our Ricchiuti question

Chris Grenga

Hi, Jim. taking good questions. on you Chris afternoon. the Thank for Grenga This is for actually

you us some weights to in you that to You back the your that maybe speak driving of result? and result that QX. lower you the visibility Could cash to drive for expect there? than half the be that those factors factors in expect of And mentioned frame usage in

Charles Beck

Yes. customer timing It’s a of culmination receipts. of

large receipts have We revenues. also some coming on, but customer growing

the talked it start they call, three we different As to on the in phases. has and about contract million projects last $XX

As payments, that just including year. the continues as well also to drive as cash some last Walmart large it revenue of the to related we signed ramp, additional cash. that of contract with that we will is But both that have timing

Riley McCormack

year-over-year growing we X,XXX We two tailwind grew margin burn. the flow That’s expanded for and – in points. basis expanding incredibly strong an Those Yes. in XX% cash reduction for we big – margin. Chris, line gross trends gross by grew And cash revenue a our top QX.

Chris Grenga

you it. product? I a And the elaborate you in program nature on a on version What yes, those very could bit the of elaborate And of that? like what – absence factory the that much. entails what and Got Thank for doing Sandbox customers before they were automation? of the that just guess

Riley McCormack

stuff. I And wait Chris, is, This front there really, use really will Yes, would customer I a exciting love so, specific who publicly five you out joint plan put comps about about just and tuned. weeks strong or case together. the if on want lot as this. the is But be stay that to. more run really to is being

a the it’s things, version I of and One important Sandbox of right. referenced, our platform,

we So we have finding platform. products and is, historically, full to are we and are And with we are what we market then with have gone to market gone constantly learning. exploring and our

new constantly opening are opportunities. up We

We version platform. are new of things. also for market is constantly learning our a a There Sandbox

case, in for factory x, this automation. So for Illuminate Illuminate

flexibility the paying buyer components the as or some enables they lot what the of the cost don’t get not a buying for components itself, so of but they from platform need. And platform

here. So, that have seems a development to really exciting real go-to-market legs it’s

about well. We other we will the x more for the customer six But as that to the factory and products. be publicly they couple opening what x and market. case, into could see weeks. So, avenue Illuminate third where this without this a idea of are up importantly, exploring getting we be for is is go there We is automation, got platform, then specifically five in a our weeks think to here and who got potentially all have out our but I Illuminate or in value is, we customer being doing

Chris Grenga

are Thanks. their helpful. anticipate customers Generative Got it. customers vision. appreciate I Generative existing be And the of That’s targeting more, anticipate business? AI if I into you the set may, more are color all using operations, for in would that on one you that targeting or moving customers the Do AI this would a very that new

Riley McCormack

of don’t in all, say now I if to Well, would know first is six going not Generative using months, be I everybody AI.

there very benefits be not. more. if launch a detailed who is are of So, that we if you comps say, we for talking and going listen would be I and to I saying, don’t here, to where plan we customers again But out what will have all, about difference know a upcoming there product we are right. is are to

the to So, problems Gen solving authenticity at as authenticity it’s of AI value models. and watermarking even fair world, input there beyond world. for Gen AI same and the the the beyond well digital is those and problems so two Gen time it’s But AI assets in much in two safe the provide assets solving and as itself digital of training

relationships, for we because tuned exciting watermark more opportunity. digital that, are our are simply stay but stuff. huge our that our pretty to And we provide positioned expertise. again, in on background It’s and uniquely of one So,

Chris Grenga

Appreciate Great. the very color. Thanks much.

Riley McCormack

Thank you.

Operator

you. Thank

the question Please Our Bernstein from go ahead. with of Silverberg Bernstein comes line Capital. next Jeff

Jeff Bernstein

Hi guys.

Just a for questions couple today. you of

think factory what very had talking guys back on relates are on that I vision. is related about you we back a work high some side, is you automation Just with Is quite this and machine here? Cognex, going vision while, had this the done with machine to –

Riley McCormack

absolutely. Yes,

in providing vendor So, mentioned, items intelligence that there multiple be vendors talk a wonderful. lot to vendors, Cognex, partner, it’s you than in wonderful a factory. a just their And market ecosystem, vendor. There an But there. factory. right. obviously – historic without there is Digimarc is is as out identification automated has is wonderful developing of can about is – and the lot a There camera we the – multiple and itself too, share and more mentioning one

So, absolutely yes, right track. the you are on

You stay our partners have mentioned of one and tuned. wonderful

Jeff Bernstein

Got it.

then Sandbox, make to Okay. as want not cyber cloud? connected not just that’s to term understood. I you talk in When And the about sure security a I

Riley McCormack

Sorry.

Jeff Bernstein

it. Got

sure…. Okay. make I just wanted to

Riley McCormack

easier and a Illuminate Illuminate for no of meaning would it’s things. for know again, word just a functionality, We to back. had taking make x, to out whatever idea bunch see here I different a lot a It’s give step in –

Our we is own Illuminate what our right. platform build upon, products

are capabilities And some are of in Illuminate we our little little so we a product. of want four currently bit of the a taking bit that products capability, calling and we a say this of that capability,

customers Sometimes just and full and And our Illuminate. some whistle our want solve capabilities. of products, our want, wonderful within They using capabilities all especially want one platform. using and a people then the of lever not for every predefined to problem want sometimes but bell

there what couple is And coming. in for version automation that so – we this that’s ones be other are or potentially talking is a case Sandbox of for about Illuminate could factory Illuminate

Jeff Bernstein

Understand.

mentioned then And a program. great. deposit That’s return Okay. you

So, quarter. is this – a talked one the prior you think I second one addition to on about in

Riley McCormack

Yes.

VAR signed announced we of we months we QX, that So, a our ago. announced wonderful and couple that in

that in release in the specific large on got system DRS a it to I opportunity came think who the call an they the earnings is and referenced their coverage, As provide wanted here making top effectiveness, is California. of something was somebody article for very about that ago important There and a getting out, is of Charles We week about weeks DRS press a to on cost-effective actually are or But of What and could are scheme And authenticity cost a three a in There building one are somebody believe ago, us X.X of next we of a lot million products I it. of – it’s got have family we is is of – a and by a going literally the DRS of was stuff. And terms back that’s country the is as problem. bringing big soon ways Arizona meeting was to that huge VAR. that ease deposit solve it. we Illuminate. a working way. just mentioned, there cans solution them an own through value in country. existing because implementation. from to insights and terms sent or $X me as currently from This there about There our in do to is and our systems invitation to talk coverage can solve more we extend day, ways terms the it one using on for go

network We have one $XX earlier that countries. also to VAR that’s to that in we QX that and we the other to of part in as looking successful expand and are – and help deal, million VAR be more

Jeff Bernstein

on color the you Got is area one kind of more that adding general Any VAR it. mentioned in? And VAR. then

Riley McCormack

Illuminate. are they and Yes, using

use mean market label are the so what and end they they you So, they going case – not after, company. are what packaging

Jeff Bernstein

it. Got

costs through a little that there counterintuitive customers sounds mention lastly, was just me. And you infrastructure Alright. it Okay. a product Could walk how us actually your utilized coming product about And down as more. to is. the

Charles Beck

the capabilities that be to out. Yes. platform and mean that for a more able are provide we we I efficiency have it scale updating cost will from perspective

platform, So, newer that on some which Illuminate to technology updating a is legacy and the we are taking platform.

the our drive we platform down. continue average to So, be will legacy able off price that of transition that, onto we as to expect we customers

Jeff Bernstein

help for there. Thanks the you. Thank great. That’s

Charles Beck

Thanks Jeff.

Riley McCormack

Thanks Jeff.

Operator

of Janney comes the question Please next go Knipp line Our Montgomery Instructions] with [Operator Scott. from Robin ahead.

Robin Knipp

it quarter. on I with only Thanks reporting you know for of first able the the question, a us collective ask different taking answer the were the call. really contracts but I multiyear were I will that we I good appreciate and it, suspect that year? to on Riley, congrats share are deals gentlemen this to total anyway. the

Charles Beck

was aren’t intentionally from to and We went but confusing, it’s but metrics, it. get There we reason it into reporting away first to throw both trying But the why a total out figures. Yes. other because was sizable. was seven don’t into it want I

Robin Knipp

Okay. quarter. Very it. Appreciate Nice good. Thanks.

Charles Beck

Thanks Robin.

Riley McCormack

Thanks Robin.

Operator

the questions, to Instructions] there closing over As are hand comments. I no McCormack further Riley would now for [Operator conference

Riley McCormack

Thanks your day. a hope have Ryan care. and you thanks everyone. Take wonderful We rest all of

Operator

conference has now of concluded. Digimarc for Thank you. The Corporation your Thank you participation.

may You lines. your now disconnect

Digimarc (DMRC) 2 Aug 232023 Q2 Earnings call transcript