Digimarc (DMRC) 6 Nov 222022 Q3 Earnings call transcript

Good day, and welcome to the Digimarc Q3 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference over to Mr. Legal Chief the Meyer, Officer. Joel Please proceed, sir.

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

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

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

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

Joel, and everyone. you hello Thank

to QX First year. product no QX in year from down. commercial year were last that million complete winding bookings our will compared million There Bookings we $X.X last $X.X Piracy in during $XXX,XXX quarter included this be from in nearly product Intelligence category. bookings are third future the

Excluding million to to two. $X.X one, new of payment the Piracy agreement. annual under quarter in existing from $X than provides These The a first million agreement $XXX,XXX doubles increased payments year signed $X.X included for minimum bookings million a XX%. more $X.X new minimum and the payments in incremental year commercial Bookings million are we agreement receive QX or with the we for in Walmart. Intelligence, multi-year year our

for from grew the from last $X.X in XX% million QX revenue development $X.X contract the quarter say will Revenue the provided remaining to later the subscription $X.X new have year. to quarter. fourth Riley million new quarter quarter the upon Subscription this third call. to XX% revenue during was million expect The We acceptance. contract the million. $X.X of of Walmart in exciting for about booked million, up customer million be value receiving in in $X.X $X.X more

for rate next quarterly potential revenue the quarters We with above a this run upside seven the contract expect similar over payments. minimum

two are the factors revenue growth, this in of line less the from was revenue addition Beyond product. the in impact of by than Piracy $XXX,XXX fourth subscription quarter of offset year-over-year offsetting revenue our year-over-year year. the our impacting decline The expectations be the There there Walmart subscription a from our sunsetting Intelligence contract, QX with on product last quarter. sunsetting variance in EVRYTHNG, similar will

million QX timing nearly was Excluding as million, the X.X XX% year XXX%, project quarter Piracy million $X has is acquisition last due in accounting significant year. X for The to largely last margin the but revenue EVRYTHNG. completed. to in reflects revenue change $X.X Intelligence, the subscription expense increased XX% compared assets for had in recorded in on QX recycling Gross $X.X amortization compared Service The work acquired intangible $X.X we work Phase quarter decrease million year-over-year. margin HolyGrail last to since year. was recognized in of of the

optimize one-time expense These and compensation our of to changes severance QX $XX.X $XXX,XXX organizational comprised were expense. The strategy. made Excluding increase quarter severance quarter $X.X million to changes from of costs margins expenses and was during quarter. million year. QX compensation which incurred and the of go-to-market gross cash for the the in we post amortization $X.X made last EVRYTHNG to order expenses organizational operating stock-based Operating the Non-GAAP stock-based were of margin, costs acquisition service streamline of subscription million business were XX%. $XXX,XXX amortization, compared and costs compared better profit $XX.X XX% reflects excludes The expense, in million were year. for XX% in to for were margins XX% last

which on year-over-year, one-time charge, and retain increase in to severance I attract the of order million million been The just in were last from Half from $X.X the higher year. EVRYTHNG and for talent and from $X.X headcount compensation stock-based and annual the EVRYTHNG compensation increase referenced. to expenses form necessary Non-GAAP from compensation. go-to-market compensation year in higher of impact was has we headcount. and strategy. increase million acquisition our the to million since in of the QX team the post expenses last adjustments operating expenses non-GAAP severance need The in compensation $X quarter higher costs included costs million Excluding $X.X $XXX,XXX compared operating costs the $XX.X were the operating reflects of million accelerate $XX.X

nature, severance cash do non-recurring these in activity measures. not While back a non-GAAP our not out severance costs it we in is are determining itself one-time so

impact cash operating and of higher non-GAAP adjustments from were million higher expenses $XXX,XXX higher the annual $X.X which the severance Excluding year-over-year, cash costs compensation headcount. EVRYTHNG charge, from compensation included and

and $X.X increased and the versus net increase the that costs QX versus common last the of in $X.XX usage per loss in ended decreased. Engineering our of million gain and Non-GAAP investments. million excludes year the As cash QX million which post in $XXX,XXX one-time QX $X.XX the EVRYTHNG with quarter related last The between which QX the last million during in of $XX year. and acquisition Marketing loss we loss benefited of impacted This by operations, million the cash quarter. to We changes quarter The year. and optimize headcount of was during & QX paid G&A severance Net cash share, quarter in reporting Sales part while departments. $X.X $XXX,XXX income. compared $X.XX is other We cash and this non-recurring $X.X were was to $XX.X in by investments year, in was last of used QX last evident reflects organizational R&D classification per $X.XX year. net whereby comparing reorganized costs a for common expenses gain structures, some operating to share

repurchases I would which Last and at look cash estimate loss, Excluding as $XX.X net for we metric to internally share levels cash mentioned used the usage severance our on layer and costs, non-cash have flows. expenses, that of capital quarter excludes non-GAAP million. been normalized expenditures cash

the The net for quarter, third million favorable and of a loss non-GAAP million actual plus used, between is cash after of and the million $XXX,XXX difference in the receipts repurchases. $XXX,XXX timing factoring million share $XX.X of cash swinging QX. $X.X was anticipate metric cash $XX.X in the this expenditures this payments. For excluding of severance, capital We in our the direction and $XX.X

business, prospects be further update. provide For discussion our the Riley our for please to our Form will now business with of and risks SEC. that and will a refer results, filed financial XX-Q

capabilities. Markets us best And want signed the of stay case doing opportunity Thanks, new lot which available opportunity eager right. the that discuss immediately this tuned made use opportunities fronts questions for are the doubt, of are whole with ahead deal Digimarc about of Markets the to be in a a Total on to to have do do we a powered for the to exciting spend Illuminate refers terms to expanded result Addressable a this this can deployment case of is in best and then, equally to our use describe Walmart, by the Charles. the development, the I’m of or plan incredibly will Please in progress framing some an size not just with this say more the this Walmart refers the besides, is highlight perhaps time of many we as as result was exactly to the know of sets us there’s of beyond more covering scope Serviceable We in I new many the when size that Available and confident TAMs, of deployment of I Platform. Until or time what which deal we and details the platform opportunities all what as case. can. without that the expanded as QX, with this quarter way Digimarc deal the the you exist SAMs, not-too-distant-future. to, Walmart we but

I on SAM our capabilities. TAM want use case and the of the First, the new to touch platform for

two, Walmart, higher is $X.X there year that that large use at even are of to of the still second penetration first in year is than as reach as Hence year $X.X multiples million As than deal. to so end more with the twice Charles new represented year of this at penetration of note by payment payable at structured the is upside in remaining multiples as Walmart of full before mentioned, we two the of case important also our payment SAM, deal in million is the Digimarc the the the full the It deal. Walmart.

world, digit this them retailer of case, the the TAM total signed deal the in the with we for the percentages capabilities, of expanded of and of Moving U.S. TAM now to Walmart single only is use capabilities. opportunity our above, the new use only global while case largest new is the million this SAM of our of multiples mentioned of $X.X the hence again digit and platform single this which percentages platform is use represents

an top delivering priority term is the note and is the to of is that important opportunity it this annual revenue For near company. ARR also meaningful, same singular a platform real, use figures. time, while it’s our focus, recurring of the course, across with well Walmart; not for it our nine opportunity a now, expand focus to our is or into At

revenue, provides expanded for the deal this platform increased Beyond also opportunities. opportunity product

product will last discussing benefit been that Digimarc the few product have quarters, a demand. of top-down For digitization from a we driver new

should anchor Walmart powerful with as partnership that new Our demand. act a for

all on we’ve digit product’s leader. be every profitability day, of is deal the result and across our And much our in both the a on to and a its the considering enough is SAM laser-focused between product, of points product launch we using improve of number be products at take Measured multiple the to longer-term to relationship the technology opportunities its SAM to Even gotten ARR, technology think soon the is to new Walmart, and us also our the operations. launched and large this closer how this TAM of is side, larger touch platform like large. today’s launched a of Walmart single the own. to mind-boggling the TAM. new cutting-edge than exciting SAM As its It’s presented opportunity. on aspects with the of all announcement is by part TAM most platform our and SAMs product of platform percentages of soon immediate TAMs processes

a enable digitizing the to product digitization are We true laser-focused products digital transformation. world’s company, on

as Walmart beyond. quite together day, because impact this honored a a every company in partnership what ask them. things, assured, to our to the and with public digital impatient digitization to at to goal retail you about way, industry, things future Rest in continue in seriously. hear expanded and take innovative simple, commitment we until profound I just is can our our have more be as product to exactly customer we’re Our very those are is partnership faith and journey. and Walmart’s win it will great innovative their very large transformation say talk we’re about confidentiality. are the to partners a doing world respect But on you We

from again Canadian results an Recycle, the Not effective sortation all news, Circular a what the Walmart ago, with regardless which the only Recycle few doubt There repeatability. some of geography zero that material as step-change rates two. us exceedingly of performance, they of recycling the ability consistency technology third Plastics factor, weeks provide. high that saw the simply provides performed. I accuracy we similar should can or Digimarc Starting Digimarc cannot. make sort which and the with yet shows of current to stakeholder value material, comingled to this with sorting highlight tests group, we top-line the are visible, of with proves exact optical the on this test from But as also significant. improving prior Pilot, visible, not. results This real, be accuracy QX form Digimarc the Recycle same trial some accuracy, XX% type Taskforce is incredibly was in of because consistent recently are confirmed released is waste, progress Moving the in also

in improving between flexible recovery technology working packaging, today’s the sortation current on structures, lowering overall Their plastic the CPT, with projects Canada to Responsibility you focus landscape unfamiliar recycling the us because mono-material to broadly. packaging in those aim cannot of is quality. within improve and of recyclable Producer Quebec, multi-material distinguish they packaging For drive plastic evolving Extended and bale more with rates

We are in energized recycling CPT more against by for their the Canada. opportunity as they execute support effective to vision

And Recycle in can how growing. we other are stakeholders gamechanger with multiple is discussing Canada, geographies. be a Beyond Digimarc interest

of truly are borrowing to no We cry where to prioritizing the urgency is commitment the Coalition and real UN pollution. no QX time companies, Global is XX+ and ambitious, Digimarc, is binding of of rallying plastic waste development supporting global the there committed launched including to a there to Business because opportunities end a time group Treaty, Plastic legally from I’m in and treaty that waste. for effective, an

to of waste, the the achieved the part on wouldn’t a be implementation that No but published recycling One high-quality carbon being the Digimarc emissions just is Foundation, And emissions can Ellen committed to at that a reductions, reduction have convening negative a time MacArthur solution. indeed. large the that organizations, recently cost. of shows of document impact carbon

forward main the regulatory and authority European its tackling growing proposal the end the low the the packaging publish at the of bit, packaging Commission, production waste wish for waste circularity. packaging EU They Looking packaging for revise to of rules the this level by month, a to will the of XXXX upgrade market. and European rules

recycled measures expect and achieve of requirements, public recyclability We objectives and those mandatory labelling procurement. including to unveil to targets, Commission several greener new packaging the content

our uniquely educate key many Commission’s including the they post and meet can prepared are objectives. stakeholders proposal We achieving the And about better other support is stakeholders so to retailers, we As of month. the these end brands you look release, who to technology, know, and positioned to at requirements. prepared of we to Digimarc are policymakers support forward forthcoming the in

published on website and For in the the be those interested, XXth. on and Packaging release the November revision Waste press will of discussed press Commission’s conference Packaging a Directive and

our in in transformed up our company every milestone assumption began In to new open ago, questions, we and the the doing a new but early our website, not work come we is six with also up ways, question of small. time big in we a lot right want quarters took reflecting the I transformation. refreshed as result to answers, content and Before call launched revealing the that recognize the of we so, that and big many just our look QX, to

so these adequately to it is you quarterly those visited who so. on There of much our on For it I going you haven’t do our calls. of at recently, all website company is to convey encourage difficult

only Speaking six us to teammates for these this time. goal our now you inspired to quarter. whose hard, know are thematic my heights, over we to and work where past us take to will quarters It’s has new now continue all gotten

Operator, questions. Let’s call open now do the this. for will up we

Thank you very much.

question-and-answer Advisory. [Operator Instructions] We your Matt with PCB will the from session. First comes now question question, begin proceed Please Matt. from Collard

is this twins Hey, in on the shaping Walmart customers Congrats made McKinsey strategy the evolving wanted be progress or Riley. to and conversations on being to A definition your lot or or in is topic. a how digital team highlighted about understanding, to recently deal with twin on know digital and landscape, tech soon the I your the the the you you framing interview the overall and quarter. customers.

was Hey, Yes. time twins It to as and McKinsey, It’s interesting an about anybody of started called what McKinsey we was And an I or we we introduction article, question. first these interview the but a started think major was it do. podcast. a great that the guess McKinsey, calling don’t the have obviously the We term a acquisition group referring has when time to I Matt. or close everything. so what the digital first

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in a And pretty still of what so digitization is terms we’re really lot a people there’s better understanding of the Product early doing, right? value. understanding

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and too. kind to beginning words the Awesome. thanks for Thanks, Matt,

Thank Martin. from investor. private next your who a question, you. [indiscernible], proceed Please question is comes The with

pump. Congratulations on the Walmart

Martin. Thanks,

annually could said alone that you nine figures. be think you with clear, in be $XXX Digimarc, To revenue right. All million

you. I’m sorry, hearing hard time

$XXX million Walmart you could a the clear, revenue. nine year be think in a alone deal figures, be To

penetration at the Walmart. the so said we What left the multiples we Walmart before of SAM, million, which is $X.X second No. full of there’s year contract, is reach still of

exactly defined I’m haven’t -- also from just about from but the what Walmart talked But deal. upside sorry. there means, that is we we So then million $X.X the

to trying I’m million. figured, Nine $XXX my around head get

total addressable market. So the

about we correctly. same were We So that Walmart, what the platform to nine with are of – case. for not that’s be licensing outside Walmart, Walmart talking use we case our undisclosed figures, use could

I company understand. off, this takes about Last taking you if mind, don’t had private? any before question, discussions you have your

No.

ship forward look rocket I right. with All Excellent. to writing this No. you.

thank Okay, Jeff. proceed from question, from Jeff your question next you. The Bernstein Please with Cowen. comes

Riley. Hey,

on and is having to about guess So talked to other deal, the that the this congratulations from application sort I get of the the impetus you party have done.

so And could that. maybe you confirm

Yes.

launch So a top outside was said What that signed is we the is deal we control. is we’ve about of the that the digitization. been driver what of of powerful in said new ultimate we timing the our release down product with of anchor very a today product. talking product that Walmart And

Got particulars about you. And understand the bit previously. a general to I and then this you little just wanted talked in have terms

then may customers that available. supply Digimarc constitutes of cooperation other may and entire the TAM their well application your that Barcode utilize be they to supply There here and for be development license that is as the would chain to for for. Walmart barcode partners going application that have their So Digimarc platform going Walmart facilitate type capability. to of Walmart’s kind of adopt There’s there’s that need to impetus an order an to chains in

in another this. deal and are the we access – to try signed Jeff, if of TAM asking. benefit who take Walmart I right? That people mean maybe very that’s could for is as confidentiality today. on the outside way, we maybe the side. from right? But about world this case to platform, with our the seriously. the said, the So other talk okay? I SAM – use we I announced this There Walmart, deal are is me the platform don’t we we want Which understand let try a really customer have why you’re

down saying powerful want about Walmart signed a all that’s launch We top product that product of that’s to now, driver a anchor are really this Jeff. deal which and and all is benefit will say with a digitization I comfortable I’m from right we

great. That’s That’s great.

think penetrated I Walmart this even not is here and... important, fully contract, But immediate are the the opportunity at we year in of second

Understand.

for trying The is new an give by addressable to the as itself take launch TAM product product we – company. we enough us new which some TAM, but to were a undisclosed is the will figures, ballpark to has profitability immediately opportunity

things Yes. Understand. going That’s numbers They’ve had quick GSX. with other global would questions location new something sounds two great. for And it’s some like I that this got then you be around sure minute? touch that as applications program well barcodes. can for Can XXXX XD for systems a everything sunrise very just POS those a positive you to at as on retail make handle on

is that second Digital everything Yes. the first Well, writing which talking of big Link, so of all, you’re thing was standard. part about a

supply so is the so something going general, global benefit company. digitization industry the the a are we standards we’re we’re in product fans welcome. And GSX, the chain the for built each And easier other, work, that that as allows to but big right? is, of that And more GSX can with trade so to more

So a big And that of – one crapping this Digital everything referencing that But everything specifically, called XXXX was of that heavily we’re the big something a standard. thing actually was the that’s GSX you’re standard that’s last in Link. does. involved sunrise, that fans

Great. Thank you.

comes The your with Instructions] Van next [Operator Jeff question proceed you. Rhee Capital question, Please Craig-Hallum Thank Jeff. Group. from from

hear Van about guys, to Walmart the Hey this deal. Yes, very exciting for is Jeff on Rhee. Daniel

Just fiscal do on years Just year? first now second and fall, mean year, years what years? So by when XXXX, maybe are I year it, XXXX, we we talking interested, but fiscal just second assume, here from talking first year understanding we the and missed starting QX? I are these fiscal

as so term of it’s the starting a QX, a it’s Yes, contract.

QX QX following period. the year the the The and same runs from contract year, then to of first time

terms is running excuse everything, that then on going how everything second, Great. And is that then how understand first, in is helpful. year-over-year everything Okay. looking – million and That’s integration and correct? me, at expectations? if $X.X is correctly, just sequential of around the meeting And numbers I

functional And it Charles for first integration second Yes, target so integration we’re each Day I’ll to turn complete. internal at the do need of things the is be We we is list the as to handle [ph], calling went what great, company? which a in group, of group I’ll And the through that we the that The functional to and part. the acquisition operating Alpha over had close is said, one in is part. achieved from a was nobody included remember over I should goal that will were their transcript. myself ago. was are the team But card on the something business my I of and a said what London. have we team. that we And – I Digimarc my QX. – it’s probably I name one acquisition internally year highlight, said, set announced out year the is goal, a we leadership a now, some when

We are one company.

subs great. So about, And talk talking – we maybe think the about mirror talking and $X.X number view – talking want it’s it’s million about you going about? you’re in Charles, integration has I rear the – we’re is the

Yes.

So we’re product a out we’re not because combined breaking intentionally selling now. that

math product, so of what there’s selling might way that kind kind we’re a can out. be, say you to So some do backend really allocate but of no it combined to

not So bookings revenue numbers. reporting and we’re individual everything,

trying you’re in non-U.S. everything keep I to math had can you that thing is mind do is one And dollar imagine Yes. exposure.

So to well. been every strengthen as currency headwind beginning the versus other as to looking, year? number that to a the since the so And you’re that’s happened dollar of what’s

Okay. questions. Thanks. had. That’s for my I all Thanks taking

Yes.

you. Riley session. Thank our now like McCormack remarks. over the to concludes question-and-answer conference I’d Thank for This to turn you, closing sir.

Have dialing thank speaking everybody day. forward and look for great Claudia, you to of you, your rest again with Bye. soon. thank Well, and we you in a

you. today’s Thank you attending may Thank your you now for line. has The now concluded. disconnect conference presentation and