Digimarc (DMRC) 1 Mar 232022 Q4 Earnings call transcript

Greetings, and welcome to the Digimarc Fourth Quarter and Fiscal Year 2022 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. Joel. you, Thank

begin. You may

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

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

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

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

bit, Joel, XXXX strategic financial afternoon, everyone. the us and I year highlights is for you, and the for how to and good in the will In on Charles XXXX spend time beyond. year. review transformative Thank position a they want highlights a our company.

government X all know, you As markets: we revenue through primary and generate commercial.

government out On pride deter valued it of long-standing banks. X customers, extending expiry, side, the our of great counterfeiting decade. to currency deeply years excited are in our and continue work before We Central with consortium work contract the the take World with the global banks the to and end through re-signed our we our central the

in the partner, a our technology, we and of support doing recycling. our a multinational system, testament our power build as mention not to to Moreover, multi-stakeholder to this our wonderful what mission-critical, is program and trustworthiness ability are massive a similar and scalability to

and retailer. first world's and value-added first an a our our use multiyear with the real for exciting we to publicly products, with make new on plastic reseller acquisition deal or On announced of our Everything, closed relationship largest repeatedly problem side, global launched the on further the impact a signed case, ability Walmart proved strengthening VAR, our major our commercial

digital built and top to and form our have Digimarc and Digimarc watermarking combined illuminate products: retail Digimarc product Validate, recycle capabilities X Engage, the We have platform on platform, Digimarc that experience. cloud of Digimarc

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have product We promising multiple are candidates progressing. currently we

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

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and of our This cross-sell creates us opportunities both virus. number and upsell for ever-increasing

problems but able us customer a them brought of building they not to own to by growing growing the to the accretive also problem a path number them solve solve to is frictionless building want only our the by accretive that today, a On tomorrow. side, number ensuring providing solve are of the the upon direct sales we platform, products our Illuminate own products

existing frictionless Digimarc and products, products the adoption this of new. our because are all path value by that provide just stand-alone means Moreover, returns solves increased new from not it additional forward accretive, problems, is they compounds the which products,

are adopting built observers X platform, our time, begin positioning with transformation growing multiple companies stranded watching product and to by X their a excitement discrete visionary true product digitization world. solving products bar tomorrow's discrete market industry products and that as the while the for at We problems and customers digital longer a single finally as are to understand building today's achieve while can themselves no solve problems in on analog

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A perfect example a the to of are their world's increase current Engage of this dramatically X to they by us this customer of CPGs, made is a looking comment adoption product. recently largest

moving know providing pricing consumer is that they it get from they the functionality While are currently them, provide can forward can Digimarc their just we on them of companies lower journey. engagement our superior that some keeping functionality isn't

will journey will Digimarc and another Having Digimarc not-too-distant value in on platform their products that realization include accretive them stitching XXXX the available no their that together This would power It's what excitement us in This recycle provide point beyond. their the same built product future. the solutions potentially gives what of if to and is replicate. is XXXX. for be they able we were even all

the of top-down want an our are I as building. our of update to product market refer we of ability X the their advance products, drivers I quickly to digitization provide to two Looking on ahead, because

more which recently experience, we retail is is on first which soft available website. our about launched The

excited with top-down the control all that of on are we rollout. downside product drivers are in we means product's launch, always broader that adoption. don't While upside, of of launch. is potential The of are top-down that digitization top-down to product's encouraging work they fact is industry drivers it is very interest this course, there aspects The a for our the best

the a lack experience an not interested have have. where real would not drive modernize is to a nice about activity, parties retail have to I there from moved does experience, broad intent ongoing watermarks of need to note that to that launch publicity from this to adoption mean not

experience for enough us itself. the retail As into our addressable serviceable take by is stated on profitability last to market call, well

The second is recycle.

on the recycle applies been top-down same here experience multiple and stakeholders. on continents and for to to recycle that X almost onto TAM differences are the the we've for advancing website soon active important requested we big applies transparency actively take as well, the and recycle give our publish to a driver recycle While plan are multiple with with X stakeholders. multiple per is and country believe important retail We pricing provide figures Digimarc year to

X other we impact adoption, recycle. known. at the ago, make industry learn timing their are scope by to The the this public with France multiple in publicly brands few part and pilot we had ready for discussions A has both in group countries in at and plastics Our CPG more is market about on to to joining Canada of large weeks the scale, about pilot to a real quest announced and of market assist opportunity gathered activity A them. are Digimarc being in its initial France gathering, for they stand and recycling. committed retailers for aggressive targets European them make friends to the

tuned. watching. world the aware Stay is all are We

partnership group's force. a In they how plastics impressive small, move the them found work about motivated growing What to and our difference to proving problem wonderful this is and Moving with nimble, large QX, quickly are most efforts a to announced we results our to deepen. I of dedicated group with Canada. make that task can a the and circular real continues

Here have again, more we expect say to soon. to

informing work close that France time to Canada also learnings in in and further are but countries our are the getting we work we hope gap. Canada to is and behind Canada, other both in Our where apply

to in financially investing sure people with our business. be We to we value difficult the prospects I neither areas This change streamline always deliver This was the to of action it any sustainable Instead, performance and a want can our doing over decision that made to made. turn and parted recently wonderful deliver. teammates. talk responsibility reorganize path know we across to includes others able areas upon to in in need talented certain inherent durable reflection expect are so have are the ways we great building, some and a we to that the was build very to of to Charles, We Before team must order what about impact the of knowing we with world, a immense or call making reflection what our to that of deliver our profitability. in business. a I fully business all

path but our our to importantly not the us, actions of and have only The line size in cash margins our with forward on something results. call step coupled we the over recently world-class our in enjoy markets discuss a the sight. the is a financial both based took to current contribution focus that ahead turn I us big of take burn now on Charles reducing immediately will big profitability, we to of impact squarely

and hello, Thank everyone. you, Riley,

of were into developments highlight reflect we important on note, a number back dive also were numbers. as As important XXXX, some to and there strategically before during highlighted, want year financial I there the just Riley QX accomplishments to I

XXXX. in bookings First, first bookings in million we growth year year-over-year delivered commercial with $XX.X XX% of

to given opportunities As area we a the address. focus uniquely reminder, the commercial largest market are positioned is our of enormous

exclude piracy XXX% product, completely even year-over-year. Intelligence our our commercial was higher sunset, you If growth at now have bookings we which

we subscription million in revenue subscription XX% growth XXXX. $XX.X of in Second, revenue delivered with year-over-year,

subscription revenue is right but potential given notable revenue, our We is of our time scale. that now For total to the in subscription for XX% which than XX% most of at also software our profitable. software products roughly a incremental only the more over margins product the focus, earned on increase not our half first decade, with most to sale accounted important products our

higher XX%. If revenue subscription growth you our Intelligence, exclude was even at piracy

expect while flat in year-over-year we at to XXXX. revenue higher was $XX million, service Third, service revenue be

software to we the service As revenue a majority provide of reminder, central banks. the development services comes from our

of revenue of now Central in XXXX. to from that early the XXXX contract, the up expect over With Banks, extension through end $XX.X we with our million services XXXX, which which the contract XX% was runs in be

dive deeper into as results. I'll QX Now our promised,

year included $XX bookings last were fourth during in to $X.X quarter piracy million QX Intelligence. Booking commercial million last the in $X.X million from QX compared year. year First

As I or completely revenues. our no that has referenced bookings now piracy sunset there Intelligence will so future be earlier, been product

XXX%. Excluding piracy $X.X bookings increased year commercial or first million Intelligence,

contract year the the next First payable in bookings XX became fees Walmart commercial due fees and $X.X within QX noncancelable these remaining QX the signed new QX, we as minimum during from in included months. million of

the additions Everything acquisition. QX noncore last $X and the in new total of this year, revenue from no $X.X an the offsetting Adding impact of There XXXX, million, of Walmart the in million which one was revenue last represented positive of in Intelligence or versus including Total $XXX,XXX signed quarter to the the new subscription QX million factors of deals QX, $X.X revenue. offset which revenue subscription revenue the from contract addition multiple another increase million. of the XX% subscription in was year. recognized in that patents quarter in revenue being revenue, $X.X from sale there QX $X.X revenue for million of X% impact trend from grew million XX% during Subscription These QX the overall in year. were by piracy $X.X are included

Holy in XXX%. million while project million Service year-over-year Excluding higher work services internal recognition last of million significant quarter Piracy year banks than central to revenue due compared the was were last was our to higher revenue Grail Intelligence, or year and decline $X.X subscription to The forecast. QX is $X.X year-over-year. X.X $X.X related the with in increased marginally

our to reminder last Bank seasonal. tends sequentially the from those been QX. service And be business, down a our years, revenue thus, our has QX business As to for Central modeling several

acquisition was of or accounting Gross profit for points amortization acquired in million QX recorded Everything. margin in last XX recognized the reflects to in intangible expense for assets compared year. XX% margin $X.X quarter the on percentage decrease XX% The

which related product margin Digimarc subscription margins in subscription profit Non-GAAP as by margins to carried year. was business gross margins XX% XX% turn as Excluding which XX% as stock-based excludes decrease in business. the margin, than Everything mix, year-over-year, XX%. slight expense, for gross was expense margin were The gross the quarter well compensation lower and last QX lower gross amortization, were service amortization a was largely driven legacy to legacy subscription subscription in compared

outs were quarter expenses cost for margins subscription these combination post our acquisition. work million $XX.X product margins into Operating we XXXX, amazing $XX.X expenses X they QX and As revenue reflects the The identified in $X.X of to compared improve we ways combine to in year. pre drive to seamless from X our increase were and last technologies the expect million north to platform, have million Everything operating XX% of than of higher acquisition. growth

Excluding higher compensation higher, stock operating $XXX,XXX expenses of included higher and costs compensation adjustments expense. for was million which annual noncash the were everything, impact of of $XXX,XXX $X.X which headcount compensation

in lease our assumptions related The in Oregon, regarding of impairment compensation as Additionally, impairment impairment as prior $XXX,XXX by subleasing and charges. in expenses. to recorded lease noncash partially office lease lease lower well other our we adjusting to corporate London. charges our higher timing the our The were abandon office costs charges decision offset

expenses increase compared million operating everything post million reflects The million to for acquisition. QX operating year. Non-GAAP $XX.X were expenses last non-GAAP $XX.X $X.X in from of the quarter

impact million included higher million compensation Excluding $X were which expenses year-over-year the higher operating costs. $X.X non-GAAP cash of Everything,

On streamlining redundancies improving announced focused operations, our February and a XX, restructuring our plan we margins. on removing operating

reduction to While to result noncash optimism our involved The and our level long-term $XXX,XXX optimize grow, for We of XX%. accelerated regarding approximately of the our right were estimate million will charges sustainable thing only do for plan workforce plan expense. continues business approximately these approximately success. onetime of to in prospects future reductions charges the cash a business compensation the stock $X.X in of

the will most that quarter. and these plan in expect complete charges incurred substantially We first will of be the be

million in savings compensation in result annual stock and approximately cash $X.X in should $XXX,XXX plan approximately The expense.

services non-headcount-related of higher is third-party annual can streamline our though, our generally areas reduce are the for adjustments also other operations our employees Offsetting the pressures. prices inflationary some compensation looking where and to of at these We business we and and for products costs. savings, impact due of

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

an opportunistically raised program of price average sheet. we shares of million net at-the-market QX, under During $X.X We balance bolster proceeds $XX.XX. to the our sold XXX,XXX at

$X.X has for program ATM future available The million sales.

ahead program stock plans in additional no we assess have us. we any Although to of sell QX as under the opportunities the ATM

the million. the been Excluding proceeds usage net cash ATM, from have would $X.X

will business, For further discussion see of XX-K our financial results and call risks and for the our now prospects for that Riley please over remarks. to will SEC. final our with back the filed be I Form turn

the excited upon Thanks, that build we the in years Charles. foundation XXXX and and set are to continue for ahead, beyond. foundation XXXX to

are at are momentum come. has to into scale be and large, legs other There per sell value the goal up year, produced the questions. transformation world's Operator, digital of them, accretive of multiple to trillions across all continuing We of market our as that a are to our momentum each create work of call larger, not hard opportunity adding market the the business years products. Digimarc we is increase seeing to that digitize areas at as to open and we for our now if we will A uniquely we as lead items positioned the and for exponentially products stool.

[Operator Instructions].

& question Company. Our Ricchiuti from first with is Jim Needham

maybe the if publicity of year, be that this able actions the you of market? to alluding second Riley, if we're of you'll let and question help. there's of this half this when restructuring this product wondering light announced. is you're that in timing it some particularly to if recycled when if lack there -- predicting in the see Would product can I'm you the phrase me surprised into can -- I be traction the wondering comments gets of you've I'm the still still made. the you of difficulty around relative elaborate the way,

experience? You're retail talking recycle or about

not product. retail I'm -- sorry, experience the the

are I wonderful drivers. one the top-down the thing things top-down drivers say, got to don't about of Jim, I -- one

the with we're there broader going activity going I lack -- intent. a being That's I'm that publicity a of of This signed think our product. real wouldn't I for call control. about talk -- a on confuse we say. last activity all that new to or is one -- or contract of downsides we is Walmart mentioned powerful anchor the to and that I wouldn't complete with this is So not confuse

I if product, industry you pace on all go just work they for that. it the to publicity. to things, at interest again, I'll to publicity It's look would at think you'll website go But with want activity. leave our mistake our and in understand, I not including the best this

though. of Does relation taking is that later. connection profitability you to moving which have the the sooner the wondering there at can light industry just you're I'm in if any may I just retail rather any than to pace get some Does of be there's ensure not that actions just.

you the a our to there inflection our of belief what was Are headcount saying related reduction business? in --

Timing around uncertain. it being

Yes. No, no.

I to out Charles our I went call think out. both way of and that

and with anything. people business was either number our Charles impacted has beliefs increasing or confident to do this the think I or confidence, I of nothing said phrase in

So no, they were related. not

your opportunities. the begins line to this. And about then along this Is freely mind, as highlighted. there think, what lines there the when take time to is talk a -- there more into revenue of bit just in I SAM something you recycle to convert recycle, Yes, with respect a Is product. little can, -- large you

public conversations XXXX. early we We're scale, other CPG France, going talked committed about at people. still getting we're where in we in in with Yes. -- was -- -- a large to and I a mean, meeting there's there

hopeful year. that be stay would then I some happens with out be shortly Canada, Canada. relatively in same I there shortly mentioned, that, should So And tuned this ties

a you're of Okay. like amount balance over sound of It decent the the expecting does news year. flow

Absolutely.

Our next Craig Group. question is Van from Rhee Capital Hallum with Jeff

for Van Rhee. on is Jeff This

on the question, thinking already timing not quarter just First quarter's here? that QX that of was this how quarter's just numbers this that's in, layering in in much on whether the in or about in or that a reduction, was for what workforce reflected of that numbers? reflected is QX is Or

happened It mid-February.

in months costs about spend then X.X of in place. QX cash million of $X.X we'll the took of related regular have we'll And this So QX kind action have before to event.

on million on $X.X that's pieces And then that to Okay. workforce and is parts? there that -- so in savings, all annual of other cash reduction? relation Or

workforce That the reduction. is related to all

then update Walmart with on the case about new the would I that the use if us about Walmart retail case call is? know talked launch But the And use on soft on we're here you could Okay. what what experience. and use you suggesting. just don't were case current thinking the that quarter, of that was if hear where then was. talking is on we at Walmart we last what about That was when

the latter, the up Walmart? to understand that's updating I of you where are by you your on question. with So first them. do part we mean What on don't

of we usage about terms Anything might at terms of all hear can mean rollout the of that. that just be case above? I of shared just the is in use when in about what Walmart in terms

best what to interest just with I repeat on is this. it's work in Yes. the the which said industry our I'll call,

doesn't think all that So mean of right? taking don't care I necessarily me about again, are it of don't you own just make business. don't there's know partners know in that's that our their an any going. messaging clear they're to because important But up them. to activity I to general, mean just

Wall may at find out about time a than when Street it So finds important be very different when out stakeholders about. other

And just all. then last Okay. of

Grail. On the service revenue and in the year-over-year Holy decline

pilot maybe the we What that about moving decline? other then forward? thoughts current are for service just the Grail expectations driving was into. going but think project Holy that? maybe any revenue Just talk should France us And on that how through I being there, know what

Yes.

going -- Holy is we That's service with heard -- not Grail. That But XX% from do growth onetime Phase to there's as next say, service a lot revenue. incredible margin where of Holy trial year same and at part on it the Grail, SaaS with mean is of III be the We're involved, nothing which got revenue a that. to right? of has I there, just gross Charles this lumpy right? our was focus was So you versus there is stakeholders in we're terms universe, subscription. a

provided revenue was licensing But is our was with this Holy some that Holy we focus along really to grilled work. So Grail subscriptions. Grail on services for small pilot

mean, of a services I there just -- the sell Holy the timing focus. not our Grail we phases, services. was But been would years, Holy where Grail a of So of II. want I, work. be That's for that to Phase there's goal bunch Digimarc different to couple Phase I have don't services

Instructions]. [Operator

Our next Advisory question [ph]. Collard PCB is from with Matt

Charles. strong year Congrats 'XX. in on a

comments, Riley, level? license just wanted individual product your think the the is value-added I Or as Or of do You reseller. platform I we that? understand, terms it should of to that of? level a think we And guess, the in at introduced in about

Platform level.

that X is in We're using our Illuminate ways. Digimarc platform. So

of We we top X talked about. on are our products own Those products that. building are the

hyperscaler on that their they resellers own other to use, model products to what the platform any that calls on. And be -- the We and capacity other also more I this licensing the But have also where I working services right? top we are X call think pay just it. sell they candidates is we direct, ago, type to we're going product we in believe That's mentioned of value-added us. more build it's like and

And it, things about I wonderful guess. there's X

to as from our selling capacity, us. resellers that's its right, built or Illuminate, upon revenue, whatever out is services value-added more are work they need high-margin and first they that products got The and them they doing license highly as more scalable all

one. that's So

products It's more between win our a the digitizing end and a world's There's cross-sell win technology. a customers. the it's it's for VARs It's more It's for win-win-win. us. and win the that. and a Secondly, for using of upsell

technology We're thing win the have companies is are going creating we're we And with to never way then actually all to the lot the and channel conflicts. to that building of can best platform product market. a going are that third triple get a both in world. ideas the We're

so value-added of use to other resellers wonderful. up by solves, And letting our make come platform with it's

it. Got

Okay. the obviously All right. And I then some comments because we're about the of also, excited appreciated potential new candidates. product

appreciate any you So product the the the are the product more new drivers can't because you I would of into guess I I also will. insight process, of else. top-down of candidate Or would to term candidates kind bolt-on, question use -- new I you're if of referencing be drivers? consider think I those they will Or are the product anything digitalization? but want don't top-down that

Yes.

want call some going they're right? products, products. never reality, You Matt, I products, reason both. the out, I this were right? had to candidates not reason mean we And to we've products, And -- -- to be going a knew guaranteeing Yes, we there's product when want would they're could conversation. uncertainty, to here's say careful because I it maybe I'd I there's right I what say there's now, accretive If still uncertainty. for they're because bolt-on accretive. they are be be a they to like be

that absolutely. incredible product. to either candidate those other effect in have talked we because product some bolt-on, reason I top-down having just tailwind a a driver an said, we There's about as map road or another caveat your a word, the that or to is as prioritize forcing to opposed are function network how product really why what a powerful, with So right,

So absolutely, is it. up on -- there you picked

I -- why I prioritize that's think how that's we talked about some.

right, both is mix of candidate we are the it, but a in dissolving also So sure world's the when in make that function time. problems is about products, pool network kind time digitize effect can there. we problem -- when us of there our discrete forcing single about And top-down talk there's products, product at one there talk products a them. we'll some help

I'd further over There for comments. this floor Riley like time. the to at questions McCormack hand are back no any to closing

you, thank your time. We everybody. great a day. Have of rest Well, your appreciate

concludes today's This conference.

at disconnect this Thank You lines may your time. for participation. you your