Digimarc Corp Files 10-Q for Period Ending March 31, 2024

TL;DR

<b>Digimarc Corp filed its Q1 2024 10-Q, detailing financial performance and disclosures.</b>

AI Summary

Digimarc CORP (DMRC) filed a Quarterly Report (10-Q) with the SEC on May 3, 2024. Digimarc Corp reported financial results for the first quarter of 2024. Revenue from Central Banks is classified as international revenue and reporting by country is not practicable. Cost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets. The filing includes detailed financial data for preferred stock, common stock, additional paid-in capital, retained earnings, and accumulated other comprehensive income. The company's fiscal year ends on December 31st.

Why It Matters

For investors and stakeholders tracking Digimarc CORP, this filing contains several important signals. This filing provides investors with the latest financial health and operational updates for Digimarc Corp, crucial for investment decisions. Understanding the specific revenue classifications and exclusions from cost of revenue is key to accurately assessing the company's profitability.

Risk Assessment

Risk Level: low — Digimarc CORP shows low risk based on this filing. The filing is a standard 10-Q report with no immediate red flags indicating high risk.

Analyst Insight

Monitor Digimarc Corp's upcoming earnings calls and subsequent filings for trends in revenue growth and expense management.

Key Numbers

• 2024-03-31 — Report Period End Date (CONFORMED PERIOD OF REPORT)
• 2024-05-03 — Filing Date (FILED AS OF DATE)
• 2024-01-01 — Q1 2024 Start Date (Q1 2024)

Key Players & Entities

• Digimarc CORP (company) — FILER
• DMRC (company) — FORMER COMPANY
• Central Banks (company) — Revenue from the Central Banks

FAQ

Industry Context

Digimarc Corp operates in the computer integrated systems design industry, focusing on digital watermarking and related technologies.

Regulatory Implications

The filing adheres to SEC regulations for quarterly reporting under the Securities Exchange Act of 1934.

What Investors Should Do

1. Review the full 10-Q filing for detailed financial statements and management discussion.
2. Analyze year-over-year and sequential revenue and expense trends.
3. Investigate any specific disclosures regarding customer contracts or new technology implementations.

Key Dates

• 2024-03-31: Quarterly Report End Date — Marks the end of the reporting period for the 10-Q filing.
• 2024-05-03: Filing Date — Date the 10-Q was officially submitted to the SEC.

Glossary

10-Q

A quarterly report required by the U.S. Securities and Exchange Commission (SEC). (Provides investors with an update on the company's financial condition between annual reports.)

Cost of revenue

The direct costs attributable to the production or purchase of the goods sold by a company. (Understanding exclusions from this line item is key to assessing gross profitability.)

Year-Over-Year Comparison

This is the Q1 2024 10-Q filing, following the Q4 2023 10-K and providing updated financial information.

Key Financial Figures

• $0.001 — nge on Which Registered Common Stock, $0.001 Par Value Per Share DMRC The NASDAQ

Filing Documents

• dmrc20240331c_10q.htm (10-Q) — 1435KB
• ex_648082.htm (EX-31.1) — 13KB
• ex_648083.htm (EX-31.2) — 12KB
• ex_648084.htm (EX-32.1) — 5KB
• ex_648085.htm (EX-32.2) — 5KB
• 0001437749-24-014676.txt (&nbsp;) — 7032KB
• dmrc-20240331.xsd (EX-101.SCH) — 76KB
• dmrc-20240331_cal.xml (EX-101.CAL) — 47KB
• dmrc-20240331_def.xml (EX-101.DEF) — 425KB
• dmrc-20240331_lab.xml (EX-101.LAB) — 360KB
• dmrc-20240331_pre.xml (EX-101.PRE) — 472KB
• dmrc20240331c_10q_htm.xml (XML) — 1121KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements (Unaudited)

Financial Statements (Unaudited): 3 Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 3 Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023 4 Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2024 and 2023 5 Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 6

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 7 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 29 Item 4.

Controls and Procedures

Controls and Procedures 29

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 30 Item 1A.

Risk Factors

Risk Factors 30 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30 Item 6. Exhibits 40

SIGNATURES

SIGNATURES 32 2 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. DIGIMARC CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) (UNAUDITED) March 31, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 36,414 $ 21,456 Marketable securities 12,511 5,726 Trade accounts receivable, net 5,215 5,813 Other current assets 3,802 4,085 Total current assets 57,942 37,080 Property and equipment, net 1,445 1,570 Intangibles, net 26,720 28,458 Goodwill 8,576 8,641 Lease right of use assets 3,930 4,017 Other assets 1,106 786 Total assets $ 99,719 $ 80,552 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued liabilities $ 4,100 $ 6,672 Deferred revenue 5,256 5,853 Total current liabilities 9,356 12,525 Long-term lease liabilities 5,812 5,994 Other long-term liabilities 80 106 Total liabilities 15,248 18,625 Commitments and contingencies (Note 15) Shareholders' equity: Preferred stock (par value $ 0.001 per share, 2,500 authorized, 10 shares issued and outstanding at March 31, 2024 and December 31, 2023) 50 50 Common stock (par value $ 0.001 per share, 50,000 authorized, 21,372 and 20,379 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively) 21 20 Additional paid-in capital 409,473 376,189 Accumulated deficit ( 322,106 ) ( 311,768 ) Accumulated other comprehensive loss ( 2,967 ) ( 2,564 ) Total shareholders' equity 84,471 61,927 Total liabilities and shareholders' equity $ 99,719 $ 80,552 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents DIGIMARC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except per share data) (UNAUDITED) Three Months Ended March 31, 2024 2023 Revenue: Subscription $ 5,762 $ 3,885 Service 4,176 3,958 Total revenue 9,938 7,843 Cost of revenue: Subscription (1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) (UNAUDITED) 1. Description of Business and Significant Accounting Policies Description of Business Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon one or both of the following two things: the identification and the authentication of physical and digital items, often at massive scale, and often where other methods of identification or authentication don't work well or don't work at all. The Digimarc Illuminate platform is a distinctive software as a service ("SaaS") cloud-based platform for digital connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response ("QR") codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a centralized platform for capturing insights about digital interactions and automating activities based on that information. The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust and connectivity. All of the Company's products are complementary to each other, providing exponential benefits when combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc's products provide many benefits including: Digimarc Validate supports authentication in the physical and digital worlds to help ensure online interactions can be trusted and that real products and digital assets are genuine and in the right place. Digimarc's technology protects digital images, audio, product packaging, and other physical items by delivering exclusive, covert digital wa

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (In thousands, except per share data) (UNAUDITED) In December 2023, the FASB issued ASU No. 2023 - 09 "Income Taxes (Topic 740 ) - Improvements to Income Tax Disclosures". The ASU requires greater disaggregation of income tax disclosures primarily on the income tax rate reconciliation and income taxes paid. This authoritative guidance will be effective for the Company starting in the fiscal year ending December 31, 2025, with early adoption permitted. The Company is currently evaluating the effect of this new standard on the Company's disclosures. 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 classified as available-for-sale and are 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 Statements of Operations and are derived using the specific identification method for determining the cost of marketable securities sold. The Company ' s fair value hierarchy for its cash equivalents and marketable securities was as follows: March 31, 2024 Level 1 Level 2 Level 3 Total Money market securities $ 5,081 $ — $ — $ 5,081 Commercial Paper — 22,222 — 22,222 U.S. Treasuries — 14,362 — 14,362 Federal agency notes — 5,752 — 5,752 Total $ 5,081 $ 42,336 $ — $ 47,417 December 31, 2023 Level 1 Level 2 Level 3 Total Money market securities $ 1,515 $ — $ — $ 1,515 Commercial Paper — 14,622 — 14,622

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (In thousands, except per share data) (UNAUDITED) 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 Months Ended March 31, 2024 2023 Commercial: Subscription $ 5,462 $ 3,585 Service 257 298 Total Commercial $ 5,719 $ 3,883 Government: Subscription $ 300 $ 300 Service 3,919 3,660 Total Government 4,219 3,960 Total $ 9,938 $ 7,843 The Company has contract assets from contracts with customers that are classified as "trade accounts receivable" in the Consolidated Balance Sheets. See Note 8 for more information about trade accounts receivable. The Company has contract assets from capitalized contract acquisition costs that are classified as "other current assets" and "other assets" in the Consolidated Balance Sheets. These contract acquisition costs are recognized in proportion to the revenue recognized from the contract they are associated with. The following table provides information about contract assets: March 31, December 31, 2024 2023 Contract acquisition costs, current $ 168 $ 113 Contract acquisition costs, long-term 4 9 Total $ 172 $ 122 The Company has contract liabilities from contracts with customers that are classified as "deferred revenue" in the Consolidated Balance Sheets. Deferred revenue consists of billings in advance for subscriptions and services for which the performance obligation has not been satisfied. The following table provides information about contract liabilities: March 31, December 31, 2024 2023 Deferred revenue, current $ 5,256 $ 5,853 Deferred revenue, long-term 4 7 Total $ 5,260 $ 5,860 The Company recognized $ 2,881 of revenue during the three months e

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (In thousands, except per share data) (UNAUDITED) 4. Segment Information Geographic Information The Company derives its revenue from a single reporting segment: product digitization solutions. Revenue is generated in this segment primarily through software subscriptions and software development services. The Company markets its products in the U.S. and in non-U.S. countries through its sales personnel and partners. Revenue by geographic area, based upon the "bill-to" location, was as follows: Three Months Ended March 31, 2024 2023 Domestic $ 2,874 $ 2,767 International (1) 7,064 5,076 Total $ 9,938 $ 7,843 ( 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 Months Ended March 31, 2024 2023 Customer A 42 % 50 % Customer B 18 % 23 % Customer C 14 % * * Less than 10% Long-Lived Assets by Geographical Area Long-lived assets by geographic area were as follows: March 31, December 31, 2024 2023 United States $ 1,414 $ 1,535 Europe 31 35 Total $ 1,445 $ 1,570 5. Stock-Based Compensation Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include stock options, restricted stock awards, restricted stock units, and performance restricted stock units. 10 Table of Contents DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) (In thousands, except per share data) (UNAUDITED) 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 vesting period of the award. There were no stock options granted during the three months ended March 31, 2024 and 2023 . Restricted Stock Awards The fair value of restricted stock awards ("RSA") 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 and one to three years for director grants. Restricted Stock Units The fair value of restricted stock unit ("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 restricted stock unit ("PRSU") awards that vest upon meeting a service condition and a performance condition, such as the Company exceeding a future annual recurring revenue target, 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 amount of expense to be recognized. The Company r

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