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Digimarc Reports Fourth Quarter and Fiscal Year 2022 Financial Results

Digimarc Corporation (NASDAQ: DMRC) reported financial results for the fourth quarter and fiscal year ended December 31, 2022.

Fourth Quarter 2022 Financial Results

Subscription revenue for the fourth quarter of 2022 increased 13% to $4.1 million compared to $3.6 million in the fourth quarter of 2021, primarily reflecting subscription revenue from new commercial contracts and the contribution of subscription revenue post acquisition from EVRYTHNG, partially offset by $1.0 million of revenue from the sale of 10 non-core patents in the fourth quarter of 2021, and $0.6 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product.

Service revenue for the fourth quarter of 2022 decreased 11% to $3.1 million compared to $3.5 million in the fourth quarter of 2021, primarily reflecting lower service revenue from HolyGrail 2.0 recycling projects, partially offset by the contribution of service revenue post acquisition from EVRYTHNG.

Total revenue for the fourth quarter of 2022 increased 1% to $7.2 million compared to $7.1 million in the fourth quarter of 2021.

Gross profit for the fourth quarter of 2022 was $3.8 million compared to $5.0 million in the fourth quarter of 2021, primarily reflecting $1.1 million of amortization expense recognized in the fourth quarter of 2022 on the developed technology intangible asset acquired in the EVRYTHNG acquisition.

Non-GAAP gross profit for the fourth quarter of 2022 was $5.2 million compared to $5.3 million in the fourth quarter of 2021.

Operating expenses for the fourth quarter of 2022 increased 30% to $17.1 million compared to $13.2 million in the fourth quarter of 2021, primarily reflecting $2.9 million of operating expenses from EVRYTHNG post acquisition, $1.2 million of higher compensation costs due to annual compensation adjustments and higher headcount, and $0.3 million in non-cash lease impairment charges, partially offset by a reduction in other expenses.

Non-GAAP operating expenses for the fourth quarter of 2022 increased 38% to $14.3 million compared to $10.3 million in the fourth quarter of 2021.

Net loss for the fourth quarter of 2022 was $12.4 million or $(0.62) loss per common share compared to $8.2 million or $(0.50) loss per common share in the fourth quarter of 2021.

Non-GAAP net loss for the fourth quarter of 2022 was $8.2 million or $(0.41) loss per common share compared to $5.0 million or $(0.30) loss per common share in the fourth quarter of 2021.

Fiscal Year 2022 Financial Results

Subscription revenue for fiscal year 2022 increased 32% to $15.2 million compared to $11.5 million in fiscal year 2021, primarily reflecting the contribution of subscription revenue post acquisition from EVRYTHNG and subscription revenue from new commercial contracts, partially offset by $1.5 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product, $1.0 million of revenue from the sale of 10 non-core patents in 2021, and $0.4 million of upfront subscription revenue on a two-year contract signed in 2021.

Service revenue was flat year-over-year at $15.0 million, primarily reflecting the contribution of service revenue post acquisition from EVRYTHNG offsetting lower service revenue from HolyGrail 2.0 recycling projects.

Total revenue for fiscal year 2022 increased 14% to $30.2 million compared to $26.5 million in fiscal year 2021.

Gross profit for fiscal year 2022 was $15.3 million compared to $17.7 million in fiscal year 2021, primarily reflecting $4.4 million of amortization expense recognized in fiscal year 2022 on the developed technology intangible asset acquired in the EVRYTHNG acquisition, partially offset by gross profit contribution from higher subscription revenue.

Non-GAAP gross profit for the fiscal year 2022 was $21.3 million compared to $19.0 million in fiscal year 2021.

Operating expenses for fiscal year 2022 increased 34% to $77.1 million compared to $57.6 million in fiscal year 2021, primarily reflecting $15.8 million of EVRYTHNG operating expenses post acquisition, $6.6 million of higher compensation costs due to annual compensation adjustments and higher headcount, and $0.9 million in non-cash lease impairment charges, partially offset by $6.2 million of costs recognized in the second quarter of 2021 associated with the Separation Agreement we entered into with our former chief executive officer.

Non-GAAP operating expenses for fiscal year 2022 increased 43% to $61.8 million compared to $43.3 million in fiscal year 2021.

Net loss for fiscal year 2022 was $59.8 million or $(3.12) loss per common share compared to a net loss of $34.8 million or $(2.11) loss per common share in fiscal year 2021.

Non-GAAP net loss for fiscal year 2022 was $38.6 million or $(2.02) loss per common share compared to a net loss of $24.2 million or $(1.47) loss per common share in fiscal year 2021.

At December 31, 2022, cash, cash equivalents, short- and long-term marketable securities totaled $52.5 million compared to $41.6 million at December 31, 2021.

Conference call

Digimarc will hold a conference call today (Wednesday, March 1, 2023) to discuss these results and provide an update on market conditions and its execution of strategy. CEO Riley McCormack, CFO Charles Beck and CLO Joel Meyer will host the call starting at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). A question and answer session will follow management’s presentation.

The conference call will be broadcast live and available for replay here and in the investor section of the company's website. The conference call script will also be posted to the company's website shortly before the call.

For those who wish to call in via telephone to ask a question, please dial the number below at least five minutes before the scheduled start time:

Toll-Free Number: 877-407-0832

International Number: +1 201-689-8433

Conference ID: 13734719

About Digimarc

Digimarc Corporation (NASDAQ: DMRC) is a global leader in product digitization, delivering business value across industries through unique identifiers and cloud-based solutions. A trusted partner in deterring digital counterfeiting of global currency for more than 20 years, Digimarc reveals a product's journey to provide intelligence and promote a prosperous, safer, and more sustainable world. With Digimarc, you can finally see everything. And when you see everything, you can achieve anything. For more information, visit us at digimarc.com.

Forward-looking statements

Except for historical information contained in this release, the matters described in this release contain various “forward-looking statements.” These forward-looking statements include statements identified by terminology such as “will,” “should,” “expects,” “estimates,” “predicts” and “continue” or other derivations of these or other comparable terms. These forward-looking statements are statements of management's opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied from the statements in this release as a result of changes in economic, business and regulatory factors. More detailed information about risk factors that may affect actual results are outlined in the company's Form 10-K for the year ended December 31, 2021, and in subsequent periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date of this release. Except as required by law, Digimarc undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this release.

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP loss per common share (diluted). See below for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. These non-GAAP financial measures are an important measure of our operating performance because they allow management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing non-cash and non-recurring activities that affect comparability. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons.

Digimarc believes that providing these non-GAAP financial measures, together with the reconciliation to GAAP, helps management and investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules. These non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP. In order to facilitate a clear understanding of its consolidated historical operating results, investors should examine Digimarc’s non-GAAP financial measures in conjunction with its historical GAAP financial information, and investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, GAAP financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results.

Digimarc Corporation

Consolidated Income Statement Information

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Month Information

 

Twelve Month Information

 

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

 

2022

 

2021

 

2022

 

2021

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

$

3,120

 

 

$

3,499

 

 

$

14,978

 

 

$

15,006

 

Subscription

 

 

4,098

 

 

 

3,626

 

 

 

15,219

 

 

 

11,514

 

Total revenue

 

 

7,218

 

 

 

7,125

 

 

 

30,197

 

 

 

26,520

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Service (1)

 

 

1,380

 

 

 

1,584

 

 

 

6,557

 

 

 

6,299

 

Subscription (1)

 

 

944

 

 

 

586

 

 

 

3,878

 

 

 

2,478

 

Amortization expense on acquired intangible assets

 

 

1,077

 

 

 

 

 

 

4,439

 

 

 

 

Total cost of revenue

 

 

3,401

 

 

 

2,170

 

 

 

14,874

 

 

 

8,777

 

Gross profit

 

 

 

 

 

 

 

 

 

 

 

 

Service (1)

 

 

1,740

 

 

 

1,915

 

 

 

8,421

 

 

 

8,707

 

Subscription (1)

 

 

3,154

 

 

 

3,040

 

 

 

11,341

 

 

 

9,036

 

Amortization expense on acquired intangible assets

 

 

(1,077

)

 

 

 

 

 

(4,439

)

 

 

 

Total gross profit

 

 

3,817

 

 

 

4,955

 

 

 

15,323

 

 

 

17,743

 

Gross profit margin:

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

53

%

 

 

70

%

 

 

51

%

 

 

67

%

Service (1)

 

 

56

%

 

 

55

%

 

 

56

%

 

 

58

%

Subscription (1)

 

 

77

%

 

 

84

%

 

 

75

%

 

 

78

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

6,016

 

 

 

4,568

 

 

 

29,718

 

 

 

20,433

 

Research, development and engineering

 

 

6,759

 

 

 

4,612

 

 

 

26,490

 

 

 

17,542

 

General and administrative

 

 

3,918

 

 

 

4,023

 

 

 

18,945

 

 

 

19,634

 

Amortization expense on acquired intangible assets

 

 

100

 

 

 

 

 

 

1,064

 

 

 

 

Impairment of lease right of use assets and leasehold improvements

 

 

341

 

 

 

 

 

 

915

 

 

 

 

Total operating expenses

 

 

17,134

 

 

 

13,203

 

 

 

77,132

 

 

 

57,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(13,317

)

 

 

(8,248

)

 

 

(61,809

)

 

 

(39,866

)

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Gain on extinguishment of note payable

 

 

 

 

 

 

 

 

 

 

 

5,094

 

Refundable tax credit

 

 

382

 

 

 

 

 

 

1,260

 

 

 

 

Other income

 

 

512

 

 

 

3

 

 

 

848

 

 

 

29

 

Other income, net

 

 

894

 

 

 

3

 

 

 

2,108

 

 

 

5,123

 

Loss before income taxes

 

 

(12,423

)

 

 

(8,245

)

 

 

(59,701

)

 

 

(34,743

)

(Provision) benefit for income taxes

 

 

(25

)

 

 

1

 

 

 

(97

)

 

 

(16

)

Net loss

 

$

(12,448

)

 

$

(8,244

)

 

$

(59,798

)

 

$

(34,759

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share — basic

 

$

(0.62

)

 

$

(0.50

)

 

$

(3.12

)

 

$

(2.11

)

Loss per common share — diluted

 

$

(0.62

)

 

$

(0.50

)

 

$

(3.12

)

 

$

(2.11

)

Weighted average common shares outstanding — basic

 

 

19,921

 

 

 

16,565

 

 

 

19,140

 

 

 

16,463

 

Weighted average common shares outstanding — diluted

 

 

19,921

 

 

 

16,565

 

 

 

19,140

 

 

 

16,463

 

(1) Cost of revenue, Gross profit and Gross profit margin for Service and Subscription excludes amortization expense on acquired intangible assets.

Digimarc Corporation

Reconciliation of GAAP to Non-GAAP Financial Measures

(in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Month Information

 

Twelve Month Information

 

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

 

2022

 

2021

 

2022

 

2021

GAAP gross profit

 

$

3,817

 

 

$

4,955

 

 

$

15,323

 

 

$

17,743

 

Amortization of acquired intangible assets

 

 

1,077

 

 

 

 

 

 

4,439

 

 

 

 

Amortization and write-off of other intangible assets

 

 

146

 

 

 

145

 

 

 

576

 

 

 

576

 

Stock-based compensation

 

 

177

 

 

 

178

 

 

 

913

 

 

 

693

 

Non-GAAP gross profit

 

$

5,217

 

 

$

5,278

 

 

$

21,251

 

 

$

19,012

 

Non-GAAP gross profit margin

 

 

72

%

 

 

74

%

 

 

70

%

 

 

72

%

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating expenses

 

$

17,134

 

 

$

13,203

 

 

$

77,132

 

 

$

57,609

 

Depreciation and write-off of property and equipment

 

 

(336

)

 

 

(319

)

 

 

(1,372

)

 

 

(1,370

)

Amortization of acquired intangible assets

 

 

(100

)

 

 

 

 

 

(1,064

)

 

 

 

Amortization and write-off of other intangible assets

 

 

(100

)

 

 

(8

)

 

 

(163

)

 

 

(102

)

Amortization of lease right of use assets under operating leases

 

 

(197

)

 

 

(129

)

 

 

(965

)

 

 

(493

)

Stock-based compensation

 

 

(1,802

)

 

 

(1,410

)

 

 

(10,376

)

 

 

(11,243

)

Impairment of lease right of use assets and leasehold improvements

 

 

(341

)

 

 

 

 

 

(915

)

 

 

 

Acquisition-related expenses

 

 

 

 

 

(1,029

)

 

 

(447

)

 

 

(1,140

)

Non-GAAP operating expenses

 

$

14,258

 

 

$

10,308

 

 

$

61,830

 

 

$

43,261

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss

 

$

(12,448

)

 

$

(8,244

)

 

$

(59,798

)

 

$

(34,759

)

Total adjustments to gross profit

 

 

1,400

 

 

 

323

 

 

 

5,928

 

 

 

1,269

 

Total adjustments to operating expenses

 

 

2,876

 

 

 

2,895

 

 

 

15,302

 

 

 

14,348

 

Gain on extinguishment of note payable

 

 

 

 

 

 

 

 

 

 

 

(5,094

)

Non-GAAP net loss

 

$

(8,172

)

 

$

(5,026

)

 

$

(38,568

)

 

$

(24,236

)

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP loss per common share (diluted)

 

$

(0.62

)

 

$

(0.50

)

 

$

(3.12

)

 

$

(2.11

)

Non-GAAP net loss

 

$

(8,172

)

 

$

(5,026

)

 

$

(38,568

)

 

$

(24,236

)

Non-GAAP loss per common share (diluted)

 

$

(0.41

)

 

$

(0.30

)

 

$

(2.02

)

 

$

(1.47

)

Digimarc Corporation

Consolidated Balance Sheet Information

(in thousands)

(Unaudited)

 

 

 

December 31,

 

December 31,

 

 

2022

 

2021

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

33,598

 

 

$

13,789

 

Marketable securities (1)

 

 

18,944

 

 

 

19,537

 

Trade accounts receivable, net

 

 

5,427

 

 

 

6,368

 

Loan receivable from related party

 

 

 

 

 

2,001

 

Other current assets

 

 

6,172

 

 

 

2,316

 

Total current assets

 

 

64,141

 

 

 

44,011

 

Marketable securities (1)

 

 

 

 

 

8,292

 

Property and equipment, net

 

 

2,390

 

 

 

2,875

 

Intangibles, net

 

 

33,170

 

 

 

6,611

 

Goodwill

 

 

8,229

 

 

 

1,114

 

Lease right of use assets

 

 

4,720

 

 

 

1,300

 

Other assets

 

 

1,127

 

 

 

673

 

Total assets

 

$

113,777

 

 

$

64,876

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and other accrued liabilities

 

$

5,989

 

 

$

4,727

 

Deferred revenue

 

 

4,145

 

 

 

2,989

 

Total current liabilities

 

 

10,134

 

 

 

7,716

 

Long-term lease liabilities

 

 

5,977

 

 

 

1,028

 

Other long-term liabilities

 

 

76

 

 

 

752

 

Total liabilities

 

 

16,187

 

 

 

9,496

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

Preferred stock

 

 

50

 

 

 

50

 

Common stock

 

 

20

 

 

 

17

 

Additional paid-in capital

 

 

367,692

 

 

 

261,324

 

Accumulated deficit

 

 

(265,809

)

 

 

(206,011

)

Accumulated other comprehensive loss

 

 

(4,363

)

 

 

 

Total shareholders' equity

 

 

97,590

 

 

 

55,380

 

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

113,777

 

 

$

64,876

 

(1) Aggregate cash, cash equivalents, and marketable securities was $52,542 and $41,618 at December 31, 2022 and December 31, 2021, respectively.

Digimarc Corporation

Consolidated Cash Flow Information

(in thousands)

(Unaudited)

 

 

 

Twelve Month Information

 

 

December 31,

 

December 31,

 

 

2022

 

2021

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(59,798

)

 

$

(34,759

)

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

 

 

 

 

 

 

Depreciation and write-off of property and equipment

 

 

1,372

 

 

 

1,370

 

Amortization of acquired intangible assets

 

 

5,503

 

 

 

 

Amortization and write-off of other intangible assets

 

 

739

 

 

 

678

 

Amortization of lease right of use assets under operating leases

 

 

965

 

 

 

493

 

Amortization of net premiums on marketable securities

 

 

 

 

 

650

 

Gain on extinguishment of note payable

 

 

 

 

 

(5,032

)

Stock-based compensation

 

 

11,289

 

 

 

11,936

 

Impairment of lease right of use assets and leasehold improvements

 

 

915

 

 

 

 

Increase in allowance for doubtful accounts

 

 

89

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade accounts receivable

 

 

2,232

 

 

 

(2,647

)

Other current assets

 

 

(1,933

)

 

 

(119

)

Other assets

 

 

(520

)

 

 

(83

)

Accounts payable and other accrued liabilities

 

 

(3,856

)

 

 

2,078

 

Deferred revenue

 

 

(371

)

 

 

(10

)

Lease liability and other long-term liabilities

 

 

(1,034

)

 

 

(671

)

Net cash used in operating activities

 

 

(44,408

)

 

 

(26,116

)

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Net cash paid for acquisition

 

 

(3,512

)

 

 

 

Loan to related party

 

 

 

 

 

(2,000

)

Purchase of property and equipment

 

 

(934

)

 

 

(966

)

Capitalized patent costs

 

 

(533

)

 

 

(606

)

Proceeds from maturities of marketable securities

 

 

21,425

 

 

 

82,076

 

Purchases of marketable securities

 

 

(12,689

)

 

 

(52,523

)

Net cash provided by investing activities

 

 

3,757

 

 

 

25,981

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Issuance of common stock, net of issuance costs

 

 

62,890

 

 

 

 

Purchase of common stock

 

 

(2,356

)

 

 

(5,772

)

Loan repayment

 

 

(35

)

 

 

 

Net cash provided by (used in) financing activities

 

 

60,499

 

 

 

(5,772

)

Effect of exchange rate on cash

 

 

(39

)

 

 

 

Net increase (decrease) in cash and cash equivalents (2)

 

$

19,809

 

 

$

(5,907

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities at beginning of period

 

 

41,618

 

 

 

77,728

 

Cash, cash equivalents and marketable securities at end of period

 

 

52,542

 

 

 

41,618

 

(2) Net increase (decrease) in cash, cash equivalents and marketable securities

 

$

10,924

 

 

$

(36,110

)

 

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