Digimarc (DMRC) 14 Nov 242024 Q3 Earnings call transcript

Greetings and welcome to the Digimarc Corporation Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, George Karamanos. Please go ahead, sir.

Welcome, everyone, to our Q3 conference call. and call. our CEO; me are our the on McCormack, Charles CFO, Beck, with Riley

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

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

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

a will now update. Riley provide business

Thank you, George, and hello, everyone.

of was significant which critical joined upon development only not Looking the forward, progress areas, since and the witnessed are I all I future QX things we've company. market these Invention underway. significant most both made quarter opportunities pillars have on are twin the In built.

we We didn't also previously term. believe addressable of new areas the near opened opportunity in

doesn't gap has ahead reality acknowledge Looking the just reflect we this been never what The described. and large. QX back, lies what lies revenue between behind

that it The the prove our of delayed quarter the not third were As revolutionize. commercial results significant noted a but meaningful company our today, will to only by we of is as The industry deal also published financial will impacted this a contract. strategic component component massive represents upsell. renewal to in transformational XX-Q the

to long-term this that. we for to unequivocally business is our industry that to value, maximize strategic impact exactly I an it broad all exactly believed. path is expect outcome run than support. close longer In involved and our current Trading deal scope fact, taking to do has led We originally this time-to-close

this deal signed. stand, those in decision to a opportunities knowing which resources of the in quarter unequivocally as our the decision do I company behind resources was support of large even the wouldn't addition, that expenditure same amount versus invest in another is other we now, QX which to deal In fall

the of and scheduled deal will this it will such both from financial believe our on transformational never owe Because as call. an discussion what hold next is more we any as we been providing believe to large. the the On call currently if a of more perspective, know ahead, lies as well provide we complete as before a context this specific strategic looking we you looking and call, between we nature the details has backward interim of deal we why forward closes gap likely,

is to rest that picture deal. interim would I providing For developments clear, today call. discuss to for our I of will by ability important prepared picture my reserve specifics be the reasons of the inability other discussing the the remarks a impacted our earlier, this by this full partial provide noted of Instead

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

you, discussing in and results hello, by everyone. Thank ahead turn. context snapshot normally this of financial useful Riley, I my a overview key begin our I providing financial provides believe each our discussion because metrics metric of of

going I'm of As contract a because results not Riley that QX a our the the of of are the today representation referenced, forgo to result delayed significance state of providing business. just snapshot true

our considering quarterly include before a performance, means financial delay By expected reflective being even ARR, this are an this to expected this metrics, recognized financial in ending resulted important of large having contract to addition on no impacting in cash renewal is significantly go-forward the some QX. during delay impact contract resigning In outsized results upsell. from not revenue most collected or our of

ARR. decrease is reflects ARR in due just the new has The contract contract $X.X Ending and ARR to from ARR. contract ARR referenced, million million to decreased delayed of a was the September by as $XXX,XXX, offset at ending year. $XX.X net was additions from expired which to million I original end decrease partially compared the $XX.X this therefore last excluded

in we quarter increase booked $X.X include more year. QX X% revenue metric, companies ARR. by of some for renewals While take $X in in our an forecasted was only ARR Total $XXX,XXX million, last contracts including the a million conservative or from that are approach

increase I total which as within on from the higher the revenue, revenue QX to customer for significantly as earlier. revenue by well have customer revenue contract million Subscription accounted no quarter X% year-over-year. recognized growth upsells expected. had the we originally contracts, offset closed million existing XX% as $X.X as revenue from new Subscription of mentioned impacted grew recognized been for contracts $X.X subscription being The contract, on if reflects would delayed

Service revenue from HolyGrail year-over-year, by recycling service to government reflecting million timing. was revenue flat service offset partially revenue higher commercial projects, due at lower $X.X

subscription margin Subscription XX% margin and we fixed lower subscription number. have year the QX. QX to improved XX% year-over-year in been gross XX% a to both in in in year compared is higher quarter. profit if basis closed profit due revenue to would slightly aforementioned QX last The sequential of absorption the metric over contract the sequential significantly in this costs a drop on gross This and prior

gross Service a to XX% in mix. change in profit last improved XX% reflecting QX QX favorable in this from margin year labor year,

gross with profit mid-XX% some expect service a margins basis, to fluctuation normalized quarter-to-quarter. on We generate

year million the $XXX,XXX costs was $XX.X severance $XX.X Operating to operations. changes in of one-time increase compared better expenses an quarter align made quarter million Included operating were QX QX last ago for organizational quarter X%. cash expenses the the our of during this for in to

to flat mix lower billable severance the quarter. Additionally, incurred labor during of hours year-over-year impact of due allocated allocations, operating labor of of excludes Total the costs. the expenses, which to cost were the revenue removing and amount expenses $XXX,XXX higher were $XXX,XXX to when due one-time costs

increase I total And nonrecurring to total GAAP were The non-GAAP costs quarter, allocations. Non-GAAP the the explained. QX compared million in mirrors GAAP operating operating excluding expenses, expenses X% excludes non-GAAP expenses, flat expenses the closely severance one-time items, that were increase expenses in when million last and like $XX.X noncash up and which $XX.X impact operating for year. of in just

quarter QX for loss was $XX.X short-term versus in $X.XX per Non-GAAP last cash the share loss Net was periods. million investments. share with $X.XX quarter in in $X.XX the both year. and net ended We per

contract cash million receipts been would throughout within quarter had usage Free $X.X $XXX,XXX compared to was currently for in contract been remarks. to positive the year. the have is cash our executed due If the year-over-year cash and primarily flow QX flow been the quarter, free QX. drafted, variation we've timing last of The third prepared paid this as referencing from in

QX of payment in standard by receipt if before payment finalize contract of not to terms. execution QX, QX to receive the from year, year, will of positive. contract lag the diligently working are the free we to be If flow While we payment flow Even free significantly payment from expect usage cash QX. the contract improved do this we expect this do we be end cash the we end before receive significantly

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

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

company. any lies opening indicator. lagging as I closing closing forward Charles. you, are remarks. keep I look the significant What what looks my have can we We to soon remarks ahead I different Thank quarter joined able. was much QX this as most as my seen brief as in gap than since the witnessed will be

We now up will call open questions. for the

of The question Instructions] [Operator Co. Reilly have we from comes first that Joshua Needham &

large of confidence should All this considering level getting that off risks this commercial here, And deal been your ultimately delayed? of just in we right. Maybe in deal be maybe starting what terms closed? that's the closing are what's

start everyone has reason. close longer happened involved willing Josh, best let prepared for we expected, off the massive close will a than a by good said few to be my things and do term. me for that the for It's to in time The remarks. going industry. to a thing always to It reiterating deal scope. taken to long trade transform I are has And

want specifically, extend I asking, can highlight understand are and I more to like provide it's the said, reason some So you I to deadlines had all answer many bad or for more because you're me this them will not the and let this, of remember your but think I in reason -- question I that I reasons, so detail. why But concerning. important

We long-term initiatives. of top are customers' strategic this key value one not only to

to We are that important fact to only Moreover, also results, them these achieve key note. achieve are that we achieving and being I'm not role we unique in important shorter-term role. both an helping align they're them and that play play are well we long-term this to this is KPI recognizes results, the the that customer confident to short-term and but instrumental able critical as

in on and the the call, paranoid normal dry. really the are one which on ensuring we them. of but and are value investing deployed very could XXX% fully side increase least if, the resources very company biggest of from question, this this maximizing QX, many always be which on the our at itself resources very not it's I'm a was long-term So outside take your pursuit perspective. impact there was exciting is in answer responsibility exciting, is developments in to nothing started We opportunity worried that rate that really, just in of But risk of healthy do the customer seriously.

conversation no of allocation we might have be internally would across And I we the single say fact, company in while have the In fully the understand based business, biggest the close decisions business. customers resources visibility we There are any the we appreciate that reason longer sacred one on ROI. I taking is fully cows, and ball. valued to make our solely and this

up research understand want understand think support bring versus anyway opportunity resources areas. we but this the to the for I deploying other is to internal to simply this clear. allocate you or responsibility outcome, wisely be and likely I includes that any to cost because holding I important So of our it that not

them simply also It be well, expect again, one afraid is we'd just and book I constantly making of other make situation that, these not decision a be to We tough not a is resources assigning warranted. valuable are not need will afraid make one to to opportunities clear, we it We decisions. make.

. north greatest long-term how create Our is be true and always we will value. can the

shows wanted expect there the any Got opportunity? Are ARR helpful. from the it. had trade some card in updates provide in I on quarter. get could an there to of then opportunity. can momentum when terms that with know revenue some and I you And investors gift this That's you update

actually, Well, QX. recorded in gift card Yes. we revenue some

more we're to We everything expect said they soon these a But significant about expect as in a card contributor more as in as excited full QX, provide XXXX. our reasonably will Josh, my gift data possible and to prepared tie exciting together. as are because and you isolation, we points remarks, all in how we I be rundown as

terms maybe the and noted Got were quarter, one it. were to some Last And minimum amounts. the just some partner contracts then structured of way in more. of changes you that relationships the ARR there

Just terms to highlight should want ending And structure curious if in ARR the the the any QX that had the of any be Excellence number considering? Center partners? that you investors successes with impact in of new for

Yes.

in where an I if with you the impact, work completely. The they're working. it, although you what something investment deal it is in again understand to [indiscernible]. as can entails even it's I behind significant that this stand in remarks. quarter my the prepared see do on coincide we when closing the although if revisit transition, imagine you will specifically company, work questions happy And the I'm deal no This have saying same want but to didn't just as across do I'm describe has required resources, not the So I rate deal but

to transpired quarter. all you deliver together. this was about ton, more a ties want And in can in there just areas, same think I'd we this and then a but clear in I of that terms so how ways. else other often will significant are all the everything asked deal many get the it understand like become to time, It of I highlight, when I yes, quarter at talk it

we question Capital Rhee Craig-Hallum comes next Group. Jeff The of have from Van

for guess, large here in customer, the Riley, A me. gap, couple on they've got existing the contract. a I

have one gap in they in the going I looks think you to this do this renewed? was had contracts, renew at platform? Just it How here a contract, scenario using then couple the work? that but like particular they there least was contract if this still could not operate the didn't. isn't they or And for how in extended a of Are renewed does interim where just period? old

tell would things. really uncomfortable questions. Jeff, customer. that. customers you that with individual Yes. different us any could multiple I for talking that very get great about be have We both I have do contracts

And so access they doesn't between, just that lease be would a mean it contract, everything. covers. there in whatever gap in access is It if was it to a that contract

So shorter-term renewal, best your answer question. I think was a was not the can your first like I Was question? second And I that what there guess?

Yes.

do an contract extension Just of until some the to an short-term opportunity just sort new play. comes into renewal or

for stop focused is will close to -- it's remarks, [indiscernible] my know years deal close exposition. together I over think multiple trying that. I bandit. really what exactly next accomplish as broader on earlier we're to rather I'm time for trade I long-term afraid would to opposed you the -- And in guess prepared Jeff, time this not a support we're Yes, tough a scope. I time to to was I to , for a that good fully always quick better take And get with account saying

you second in Recycling Europe, some it. Got I here. half had know aspirations the

Just timing and the on in any on updates Europe. recycling deals large

in be around. work, It's make it. But a as driven to and I all I everything upcoming can We're referenced remarks, Yes, QX in And that sense you're seems Germany, it's wait provide that's also know prepared don't We're on know signing broken out referring but maybe I an e-mail to there with that X, intent but not was appreciated. they like understanding participants for a a in all weather to was data but know unlocked or that again, to how of pollution. I a these what absolutely. massive just the record, or be a of to, noticeable sound there more to said all hard fight it's but as to points if a comprehensive as sent could ROI evil again, regulation about that by that I some or be excited it's thankful isolation. or difference plastic encouraging. the real us. an a Jeff, to and update industry's can't change know, in exciting my might tie whether genuine Belgium It's

Got it.

there in notable good the gives which guess in government you really then most and while. quarters, not why seen other key but I timing. give I growth me X%, a we've reference That talking year-over-year you it scope, to given the lot And cash, not throws Okay. down that here, are down things engine in X% does than the of say not there's some was is can about a we've it to know bigger been decline a underpinning a business, good lot floor, was the about you year-over-year. a

are Just any that worth note wiggles talking of there about?

at Charles trends you Yes. it so do answer we it's all same But want want the government not correct side? more let Jeff, tell stuff. minute, We're just that just I'll understandable. choosing to in it's or Charles, I can't the on a about the to this all talk to maybe time

going There's depending nothing I within trends. guess, can and on, on sorts fixed we directions that year-to-year a on priorities. against, have of we're just It and can we to operating strategic generally really put resources unusual different get have fluctuate all internally in resource those that budget depending

loaded. end more be can work that sometimes so And

the more commercial it's good on that depends Sometimes on back-end business got really sure resourcing loaded. we've what's oftentimes going It make there. in to

really tighten. just it So is

growth a Charles' QX. there And you was see could in again point, that big hole Jeff, component to services,

Janney we question . of from Scott. Montgomery Robin comes have next The Knipp

already been answered. My question has

we Capital. Bernstein Bernstein comes question of Silverberg have from The Jeff next

Yes.

Digimarc they trial X that people on European basically out that e-mail they're doing the AIM we PepsiCo, contract participating e-mail and Association, sent wanted on were in candies commercial their -- a so circularity to scale in Belgium. packaging, they and with are Ferrero I Mondelez just it, QX. in to Brands And have who about signing flexible said CPGs, that back So an go webinar this

announced So I volume. amount is a But like announced, commercial you. don't any you sounds guys demo it's hasn't details of have And realize on -- a this? for been give I talk can in about who guess, a this this this you program, actually it scale but is kind to case, it's a customer sounds of us -- fair

could you around a anything then say So that? I And had couple follow-ups. of

induction? real Yes, said I seems from is And I response This talked have is a finally about beginning there's genuine And Jeff's make impact There the to And ROI Germany. -- been robot to talking again, and wonderful. a a about or they've of been possible. I change all to upcoming recycled. that it's pretty it's a rundown. webinars as be the other all in or question has AM whether industry to about. mean good I sensibility, know know difference And the also regulation

and don't So is yes, to But is things truly this the appreciative of industry. as us because, really the get wrong, a me other a planet, appreciative of great European intended solve to work it's Europe see. problem organization, and for great on. hard they're on just focused so but for the wonderful all the going company, and it's obviously, great so Aim, this

a be And you fair you anything are bit is little any a to synopsize then just anything can should we Europe? expected say -- Can paying there more or you of in Europe. could of on mandates amount of or news that right. because All that in milestones attention flow there's recycling

is all They're together. -- we want exciting, Jeff. right? I tie a all they're don't are data this these on exciting record can to this is, of sound all again, isolation. like and broken And And There great, points

we're mean this I about the and it's talk description, you're on. in full rundown really to when would everything give a we a answer. when especially runner deal I prefer over to quite not so really can and But know full going that think I I give able it. And satisfactory,

So as works and I very in Belgium be in into [indiscernible] stay them is being update. I think are and work I continue supportive supplier mean over. a plastic initiative, this wonderful to is great their just those you and of in the to the waste mean, And abreast all avenues we it. were of transparent are think about And shared, the I Germany. they

And so us business. what I can when more to our going rather just means on we're happy about I across do talk to would about it talk that. broadly everything

Yes. sort report No, any -- you that's part deal had And from several marking reseller progress quarters fine. with could the contracts and press as precious won think and if there of that had And just of wondering scheme. And of you mentioned was on subscription metals, there? you some on then that. a could deposit revenue wondering return that, just color kind I wondering give if there a growth release in just ago was the give any you existing who

the I'll handle Yes. one. let Charles second

terms relationship. for wonderful the mean trusted can they've than the nothing, And to when our How I to validation to going we people supplier just opportunity a say -- expand wonderful we we're better are partners like to, support expand is our with but things looking I and us a as proven an there's of them, think, great. partner forward In be there, our partner. which relationship our

customer about adding through to with we're talk them. value that want And do is where Charles, more to focused an upsell? we're them of so the what expansion you that's doing on

really customers, been is that's with the existing and have customers. a we've growth mean early new really in I customers, stages. of customers upsell -- several a and quarters function our Yes. nice upsells focus of the existing we're several where big from had of there And so

grow We to have lot of a runway those to continue relationships.

to we're to drive lot customers. continuing ways than to our customer sell find so try a a existing existing to and from an and And Obviously, revenue new customer. easier more more more

really growth it's is function both. -- the really So function a a of

on we nascent real-time are just could said our starting one call to best call senior say we're -- a vendor with example, technology had an are is saying And customer teammates started company, by there from this that or we the The -- to what I the internal off a intent was they a off with. to person lot really growing. Charles in like follow worked Joe, of that going some be. with the a some call customers thing of we what

got to that's an we but scheduled and and of part technology are of that have that As of expand crude can expanding, of expansion new grabbing every mean our kind validation to quarter says, I our absolutely and we was logos incredible. that stuff the it's It's a we grab kind new our to that's how upsell want logos comp that we team there the of here relationship. every because day. that the you've relationship

just of I've that's I start. part I here hardest listening, my just things that And the so for that. for week teammates contract. you wanted was like of forum a say thank those are one heard we're fall last last public that who in should how the to of in share

is can Appreciate that. when then volume understand there's should some we -- subscription a be amount of signed, so implied. of that sort And that

there necessarily growth ramps how there That for that be up, on metals -- this does thing revenue kind when of will isn't already Or a so subscription? a into the doesn't necessarily example, in precious wrapped And volume. in growth work?

one particular, is A a So of our contracts were they lot if above different. there this have, be in overage. all go would capacity our to they and contracts, that there's are

win I every you But It's guys it's like love else of something that it's next technology. years wonderful we've Just talking have it's I we'd pretty have of about and we last them and new reflection of -- how our incredible because for working validation earn expansion buy program the you brand to deals platform, reference and was a we day. new earned you It's there's -- teammates about that good validation. opportunity here been any to that you into feel year. a bring and pretty That's like a program. inside we for the couple

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Yes.

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but where position transformational this term in of it the the should I'm have flywheel our prepared you evolution you of about line about for how deal, And me referenced standard the As give terms used hopefully. we is prepared I to a But expectations? closing of in be it contract, walking this asking think effect that's be upsell we of thinking opportunity -- not of the your should in the past putting been the referenced fine answer. terms in the Is remarks. the of you the about in setting or it

-- in don't I and do to -- for flow wait again, world can't some again. I at. finish got don't throw scenarios that to line Yes. look you I Charles we the want take we're across say. gave it So don't But we lightweight. need negotiations, we right? what quarterly we've transformational to deal when around cash a get don't this

I and end gentlemen, our remarks. to like have ahead, McCormack session. question-and-answer go reached And to call for Riley back closing we turn the would sir. the of Ladies Please

us Thanks, for thanks, call today. Renee, on everybody, this and joining

give your will day. great rest Thanks. We a of

Thank concludes us. you. that Thank conference. today's you gentlemen, for and then Ladies joining

lines. disconnect now may You your