DMRC

Image source: The Motley Fool. Thursday, Aug. 13, 2026 at 5 p.m. ET Chief Financial Officer - Charles Beck Chief Executive Officer - Paul Carreiro Operator: Greetings. Welcome to the Digimarc Q2 2026 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Charles Beck, Chief Financial Officer. Thank you, Charles. You may begin. Charles Beck: Thank you, Max. Welcome, everyone, to our Q2 earnings call. I'm Charles Beck, Digimarc's CFO, and I'm joined today by Paul Carreiro, Digimarc's CEO. On the call today, Paul will share his plans for the next 90 days, and I will provide a business update and discuss our Q2 2026 financial results. This will be followed by a question-and-answer forum. Before we begin, let me remind everyone that today's discussion contains forward-looking statements that have risks and uncertainties. Please refer to our press release for more information on specific risk factors that could cause actual results to differ materially. Paul, I'll turn the call over to you now. Paul Carreiro: Great. Thank you, Charles. Hello, everyone. Before I walk through the plan, I want to spend a moment on why I took this role. Just the lens through which everything else I say today should be understood. When I looked at Digimarc, I saw a company trading well below the value of what had actually been built on, proprietary technology, a genuinely differentiated platform and real provable customer outcomes already in production, held back by commercial execution gap that is entirely fixable. That is rare and, frankly, an exciting setup. The hardest part, building durable technological differentiation, has already been done. What was missing was leadership focus, structure and accountability to convert that differentiation into revenue at the pace it deserves. I built my career around finding exactly this, kind of, situation, and I'm genuinely energized by how much upside sits on the other side of straightforward execution discipline. That conviction is the foundation for everything you'll hear from me on this call. 30 days into this seat, my conclusion is not that Digimarc lacks a differentiated technology position. The platform, the IP underlying our digital and physical watermarking capability and the depth of our Illuminate stack should not be in question. What has been a question is commercial execution, whether the organization could reliably convert genuine technological differentiation into a forecastable and repeatable revenue motion. That is the constraint we will address, and it is the lens through which I would ask you to evaluate everything else in this plan. The first concrete evidence of that shift are 2 early leadership hires. We have brought in a Chief Revenue Officer who now holds quota, pipeline and forecast accountability across every vertical, a single point of ownership that simply did not exist before. And that alone is one of the highest leverage changes we can make. Diffuse commercial accountability is one of the more common and, importantly, one of the more correctable causes of underperformance in businesses our size, and we've now closed that gap. Alongside that, we've hired a VP of Retail Solutions, who I know well, think of our largest and fastest-moving vertical, dedicated leadership rather than share part-time attention it received historically. Both hires matter to this narrative for the same underlying reason. They provide focus and dedicated ownership and accountability, and that is what produces forecast results and reliability. We are standing up a real go-to-market engine and leadership team, which I have built successfully a number of times over my career, external messaging discipline, a functioning revenue operations capability, a presales value engineering capacity in support of our new leadership model rather than layered into the old structure. We are tightening forecast and pipeline rigor to the standard this market should expect, and I'm confident we'll get there quickly because the underlying demand signals and proof points I'll walk you through shortly are already strong. We are redesigning our organization in order to achieve discipline, focus and accelerated growth. We have a plan already in motion, and that is a difference between a company with a problem and a company executing an accelerated transformation. The plan itself rests on 4 priorities. I want to walk you through not just what they are, but why they are sequenced the way they are, because the sequencing is itself the statement about capital and operating discipline. The first priority is narrowing our industry focus and our messaging while rebuilding our commercial engine focused on our 2 highest vertical industries: retail, anchored by our Secure Gift Card solution and CPG. We're evolving our messaging around 3 questions in cascading order: which industries we serve? Which problems do we solve in those industries? And what value do we create in doing so? All enabled by our common platform. The second priority is evolving our organizational design to support and accelerate that focus. We are building up a CRO, Head of Marketing, CPO, revenue operations, value engineering and a dedicated partner and ecosystem leadership function and using that foundational structure to stand up 2 purpose-built sales teams, one for retail, one for CPG, rather than single generalized sales organization asked to cover 5 industries with random attention. The third priority is reorienting how we engage with all of our customer and prospect relationships. We are implementing a formal 360-degree customer engagement model, turning account management into a repeatable discipline applied to every relationship. These actions will not only accelerate our upsell, cross-sell opportunity, but also increase retention. The fourth priority is organizing a roadshow to take our exciting go-forward story directly to the market. The recent new hires announced is a strong indication of how purposeful I'm being to drive changes needed. Now let me briefly walk you through each of these priorities. Priority 1 is where I would ask analysts to focus first because it's the one area of our plan where we already have measurable proof rather than a forward promise. In retail, our Secure Gift Card program is live today, anchored by our Schnucks chain-wide deployment across 115 stores, clearly demonstrating that the solution can be successful driving value in a live retail environment. A little more on that later. Gift card fraud is not a hypothetical problem we are proposing to solve. It is real dollarized leakage that retailers already measure and already budget against. CPG is another exciting industry for Digimarc. A great example is a global CPG manufacturer and distributor using our Digital Link platform. It is a live global rollout spanning 45,000 SKUs across the multiple global brands available in every household. It is positioned directly ahead of 2 external forcing functions, the GS1 Sunrise 2027 global initiative and the EU Digital Product Passport mandate. This is not a discretionary purchase that a CPG customer can defer. It is a compliance requirement already fixed on the calendar. To support these industries and to scale quickly, we will have dedicated go-to-market ownership across the full customer life cycle. This is what is needed in order to provide a repeatable, forecastable revenue model, which this business does not reliably have. Let me also provide you with a further update on our retail Secure Gift Card program rollout. As you have heard from us previously, our Secure Gift Card program has rapidly moved from proof-of-concept to live in production deployment, anchored by Schnucks, as I noted previously. Anchored this program success, we will now build out our global partner ecosystem needed to scale quickly rather than reinvent it deal by deal. We're partnering with Blackhawk Network and InComm on card issuance and program distribution, Zebra Technologies, Datalogic and Honeywell on point-of-sale and scanning infrastructure, Graph-Tech USA, STL Labels on secure card production and serialization and WestRock on packaging integration, a supply chain that's truly integrated end-to-end. That alignment is precisely why we're confident in an accelerated rollout from here. The technology is proven, and the partnerships are in place. The remaining work is pipeline build-out and execution, not partnership building or infrastructure development. At the start of this year, we were only working with a single retailer. Today, our pipeline has grown over 30x, and we have more than 31 large and midsized retailers at various stages of engagement, ranging from early discovery through active pilots and production rollouts and rapidly growing. Priority 2 is organizational. Structure determines the speed and consistency with which strategy converts into real results. The structure that brought Digimarc to this point was not designed for our next stage of growth, so we are not tuning it incrementally. We are redesigning it around where the business is going rather than where it has been. Our Chief Revenue Officer recently hired will unify global sales, partnerships, customer success under a single owner, closing the accountability gaps I described earlier. Our Chief Operating Officer owns cross-functional execution, people, global marketing and operating strategy. Our Chief Product Officer will build and define our value-based road map strategy and will function as the interpreter defining the business problems our platform solves across our entire industry platform. Additionally, we'll be hiring a VP of Partner and Ecosystem, which will build and manage our global partner community. Of course, we'll maintain and enhance our CTO and CFO functions as we progress and evolve. We are not asking the market to underwrite a series of reorganizations. We are asking it to underwrite one durable structural decision. The third and fourth priorities are where strategy becomes visible to the 2 audiences who ultimately have to believe it for any of this matter, customers and our shareholders. On the customer side, our 360-degree customer engagement model will ensure our go-to-market teams will personally engage with every account in person. This approach will ensure we engage with all accounts well ahead of contract decision point to significantly increase retention and maximize upsell, cross-sell opportunities with existing customers. On the shareholder side, we will continue to take this narrative directly to the market in a roadshow targeted for existing and new investors in the coming weeks, led jointly by myself and our CFO, Charles. Our goal is to continue to provide the investment community with enough confidence that it is really going to be different this time. We'll be leading with proof, not promise. I'm going to close on market framework. This slide will answer a question I would expect every analyst on this call to be asking directly. If you are narrowing commercial focus to 2 industries, what happens to the others? And are you leaving revenue and TAM on the table by doing so? The answer is that we are not exiting the other industries we serve today. We are changing how we reach them. Retail and CPG, as mentioned, will receive dedicated focus as that is where our platform's value proposition is greatest and most defensible today. Each of the solutions you see noted help solve specific definable business challenges with a quantifiable cost of inaction, which is exactly the, kind of, proof point this plan was built around. Pharma, life sciences, media and technology and government solutions, with the exception of our expanding work with the Central Bank Counterfeit Deterrence Group will transition to be reached horizontally. Still leveraging our road map and product portfolio, but mainly through our partner ecosystem rather than through dedicated vertical sales capacity. This is not a retreat from total addressable market, just a capital and operationally efficient sequencing and prioritization decision. I would flag one item inside that horizontal category because I believe it's more consequential than the current classification suggests. Our media and technology exposure with content provenance, C2PA compliance and AI agent authentication is one of the more underappreciated, potentially category-defining opportunities we are watching closely. As the AI Act enforcement matures in Europe and globally and as agent-to-agent authentication becomes a genuine infrastructure requirement and critical risk, we believe Digimarc's role could become a much larger part of the story. We are not resourcing it as a primary vertical today, and I want to be disciplined about that. But I would not want this call to end without analysts understanding that we see it and that our platform and road map already positions us for it without requiring separate investment to own that category as the market quickly evolves. Thank you for giving me this time to speak with you, and I look forward to updating you all as our exciting story continues to progress. I will now hand it over to Charles to go through our financial results. Charles Beck: Thank you, Paul. Earlier, Paul highlighted several important developments related to our Secure Gift Card solution, and I'd like to provide some additional detail before I cover Q2 financial results. We are pleased to see continued momentum among retailers. Two additional retailers have committed to deploying our Secure Gift Card solution across their stores, with one rolling out beginning later this month and the other scheduled for October. We have also made progress with the large retailer that postponed its pilot earlier in the year due to software availability constraints. The retailer is now planning to launch a pilot in September at a smaller scale than originally contemplated, with the objective of supporting a broader deployment beginning in the first quarter of 2027. Additionally, several other retailers are actively planning to start rolling out our solution in the first half of 2027. We are also continuing to see increasing interest from major brands that are exploring opportunities to enable their gift card programs with our solution. As these deployments expand, we look forward to demonstrating the effectiveness and scalability of our solution across a broader set of retail environments. These initial implementations are an important step toward broader industry adoption and, over time, position us to participate in what we believe is a significant market opportunity. Ending ARR was $11.6 million at the end of Q2 compared to $15.9 million a year ago. The change primarily reflects 2 previously disclosed events, the expiration of a $3.1 million contract in October 2025 and a $2.6 million contract reduction in June 2026, partially offset by net ARR growth of $1.5 million. As a reminder, the contract reduction related to 2 projects that were canceled following changes in requirements imposed by the government end customer. We are working with our direct customer to restructure the agreement and pursue the recertification of 3 legacy projects and the certification of 2 new projects. If successful, these efforts could, at a minimum, restore a meaningful portion of the lost ARR and potentially grow ARR much higher. However, the timing and outcome of these efforts remain uncertain. Based on the magnitude of the contract reduction, the absence of the committed upsell from the customer at this time and the limited time remaining in 2026, we no longer expect to achieve our original target for significant ARR growth by year-end. That said, our confidence in the underlying opportunities remain unchanged. The anticipated ARR growth from gift cards has largely been deferred due to timing related to the alignment with our go-to-market partners, a process that has now been completed. As a result, while the timing has shifted a few quarters, we continue to expect meaningful ARR growth as this initiative moves forward. Total revenue for Q2 was $7.4 million compared to $8 million in Q2 last year. Subscription revenue, which accounted for 51% of total revenue for the quarter, decreased $900,000 from $4.6 million to $3.7 million. The customer contract that expired in October 2025 accounted for substantially all the change. Service revenue increased $300,000 from $3.4 million to $3.6 million, with both commercial and government parts of our business contributing to the increase. Subscription gross profit margin was 89% for the quarter, up 4 percentage points from Q2 last year. The improvement primarily reflects lower subscription platform costs, which decreased by $300,000 year-over-year. Service gross profit margin was 60% for the quarter, up 1 percentage point from Q2 last year. The improvement was primarily due to a favorable mix of service revenue. Operating expenses were $16.7 million for the quarter compared to $13.1 million in Q2 last year. Operating expenses for the quarter included $5.4 million of stock-based compensation expense and $700,000 of severance costs related to our former CEO. Excluding these onetime costs, operating expenses were $10.6 million for the quarter, down $2.5 million or 19% from Q2 last year. The decrease reflects lower other stock-based compensation expenses of $1.4 million and lower cash compensation costs of $1 million. Non-GAAP operating expenses, which exclude noncash and nonrecurring items, were $8.1 million for the quarter, down $800,000 or 9% from $8.9 million in Q2 last year. The decrease primarily reflects lower cash compensation costs and other operating costs, partially offset by severance costs associated with the CEO transition. Net loss per diluted share was $0.54 for the quarter compared to $0.38 in Q2 last year. Non-GAAP net loss per diluted share was $0.08 for the quarter compared to $0.11 in Q2 last year. Turning to cash flow. We ended the quarter with $8.8 million in cash and short-term investments and no debt. During the quarter, we used $1.0 million of free cash flow and $600,000 to repurchase shares associated with our employee equity programs. We also raised $300,000 of cash proceeds on our ATM program at an average price of $12.59 per share. For additional information regarding our financial results and risks and prospects for our business, please refer to our 10-K, which will be filed shortly with the SEC. Max, please open the call up for questions. Operator: [Operator Instructions] Thank you. Our first question is from Joshua Reilly with Needham & Co. Joshua Reilly: In terms of the go-to-market rebuild here, can you just discuss in more detail why retail and CPG are the right industries to be focusing on for sales going forward? And in terms of the org redesign, what are you thinking in terms of the time line to get all of these senior positions in place and working to execute the strategy as one team? Paul Carreiro: Yes. Thanks for the question, Joshua. If we take a look at why those 2 industries, not only is it because those are the 2 industries that are very well developed already today. And we -- in terms of solutions that we already provide to those 2 industries as well as we believe that's where we have the greatest differentiation in our current product portfolio today, and I tried to provide a little bit of the solution overview in the deck that I provided earlier that you saw. And if not, you'll have it shortly. So that's, kind of, just a quick summary where we believe we can build the greatest moat as well, particularly with our retail gift card program as you're already starting to see the beginnings of that. In terms of the go-to-market team build-out, as you've already seen and have heard, we're moving pretty quickly with that. We've hired a VP of our Retail Solutions business. We've hired a CRO -- and I would expect a couple more hires by the time, at least 1 or 2 more hires by the time we get out of August, September. I would expect that full team build-out, at least at the senior level, to be complete by the time we get out of Q3 and then adding capacity at the account executive level as we progress through Q3 and Q4. Joshua Reilly: Got it. And then as you think about the restructuring of the business model here to some degree, how are you thinking about the pricing and packaging model and contract structure for customers? And does that need to evolve as well along with the go-to-market strategy? Or is it -- how are you thinking about that? Paul Carreiro: It does need to evolve. However, for our retail gift card program -- the pricing structure that we have in place for that as well as the solution packaging is already very well defined. I'm pleased with what I've seen. And I think that's a program -- in fact, I'm confident that's a program that we can accelerate very quickly with the pricing and packaging structure we have today. The other areas are going to take a little bit of work, and I'm comfortable that we can get through that very, very quickly. In fact, as I noted in my narrative, one of the areas that we are reforming the go-to-market teams against is clearly defining the 2 industries that we're going to market in, as I noted, being CPG and retail, clearly defining the solutions that we solve in those 2 industries and the value that we create in solving those particular problems in those industries. That's where we're going to get the most amount of stickiness. And so we're going to be matching the solutions that we have today to those problem statements. And that's a very rapid exercise that we're going through now. So that's where the repackaging, if you will, will be occurring here in the short term. Joshua Reilly: Got it. And then the commentary implies a greater ramp for gift cards in 2027, if I'm understanding that correctly. How do we think about what's the opportunity through the holiday season here in '26 in terms of revenue that could be coming through in Q3 and Q4 there? And is there any possibility for a bit of upside to the 2026 holiday season on gift cards? Paul Carreiro: I would not anticipate that there would be additional that I can commit to at this point for the gift card program through the balance of 2026, while the build-out in the partnership structuring has already been completed, as you heard me go through from the InComm and the Blackhawks on the aggregator side, the Datalogics and the Zebras on the scanner side and WestRocks on the packaging side, that's a tremendous amount of heavy lifting. And at the same time, we're building a pretty significant moat that is becoming impenetrable. So that's where a lot of the leg room has been happening. Now together with those aggregators, the InComm, the Blackhawk as well as directly to those large retail partners and customers that we're working with. A lot of that significant demand will be built up through the balance of the second half. And that's why I'm saying we expect the build-out to really happen and the demand start to happen towards the end of Q4, beginning of Q1 '27. Joshua Reilly: Got it. That's really helpful. And then just one financial question. As we look at the exit rate of ARR here for Q2, is there any considerations in terms of customer churn that we should be anticipating for the second half of the year? And how do you feel about your current visibility on this base of ARR and potential churn? Charles Beck: Yes, Josh. I think it's important to remember that most of the churn that we've seen over the last 2 years really has come from 2 customers and a result of factors outside of our control. Obviously, every business has some voluntary and involuntary churn, but those 2 are, kind of, special cases. And if you look at those 2 customers combined now, they represent a lot -- they represent less than 10% of ending ARR. And why I share that is just our customer concentration in general is significantly less than it was before. So our focus really is how do we maintain and grow these customer relationships and minimize churn where we can. But if you really are looking at trends, it's really those 2 customers that account for the majority of the churn that you have seen. Operator: Our next question is from Jeff Van Rhee with Craig-Hallum Capital Group. Vijay Homan: This is Vijay on for Jeff. First, kind of, question for me. In the last year or so, there's been a little bit of a pivot from capital returns to now a little bit of capital raising. I'm just wondering how are you guys going to approach capital allocation going forward? Is it going to be trying to get to breakeven as soon as possible? Is it going to be, kind of, growth at any cost? What's, kind of, the thought process there? Paul Carreiro: All of the above. It's certainly -- and as you heard, and I give you an indication of the go-to-market build-out that we are embarking on. And part of that is to do that in as much of a cost-neutral way as we can. But that's where a big part of the capital raise planning that we're looking at right now is going to go into. This is a build-out of our go-to-market program and teams that we have in place. And that's, I'd say, where 90% plus of the investment is going to be going into. Vijay Homan: Okay. Yes, yes. That makes sense. And then the 2 other retailers that are going to be rolling out here in, I think it was August and October. Is there any, kind of, quantification you can do around size or revenue potential for this? Paul Carreiro: Not at this time, but I would say that a couple of the retailers that we are working with that we're talking about, a couple of the largest global retailers in the world. So they can be very significant in size. The rollouts are starting small, but they can ramp very, very quickly and with very significant scale. Vijay Homan: Okay. Got it. And then just, kind of, last one for me. How do you think about unit economics for the gift card solutions? I mean, how scalable are these things? And how do the economics change as you, kind of, get these fully deployed across hundreds or potentially even thousands of stores? Paul Carreiro: Yes, it would be the hundreds of thousands, actually. And we've already have quite a good framework in place in terms of unit economics that are really based on volume, number of stores, that are already in place with our aggregators being that the InComms and the Blackhawks as well as with our retail customers. Of course, there are individual negotiations as we really start to ramp up with some of these large global players, but the framework is already in place, and we believe we can scale that across the board. Operator: [Operator Instructions] Our next question is from Jeff Bernstein with Silverberg & Bernstein. Jeffrey Milton Bernstein: Yes. I just wanted to hear a little bit more behind the emphasis on the GS1 Digital Link opportunity. And we've had a fair amount of, kind of, one in a row contracts in various opportunity sets. Why is this one the one where you see pressure for additional customers to adopt in a timely, kind of, fashion? Paul Carreiro: Well, that's one of the many. I used that as an example of what I call external forcing factors as well as Sunrise initiative. And the wonderful thing when you're in the go-to-market business, there's nothing better than having regulatory external forcing factors to drive the justification for the need. That's just one of the elements that will drive the demand. Of course, a big part of the demand beyond just the digital -- our Digital Link solution. And as I noted from the slide deck enclosed, we have a number of other solutions within CPG, that is being one of them that we've already rolled out successfully, the 45,000 SKUs for a extremely large CPG manufacturing distributor. That's one that we know it's proven. We've got a reference on it, and we believe we can duplicate. And that's just one of the solution areas across our CPG platform that we believe we can roll out. Operator: We have reached the end of the question-and-answer session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Before you buy stock in Digimarc, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Digimarc wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Management attributes historical underperformance to a commercial execution gap rather than technological deficiency, citing a lack of leadership focus and accountability. The company is narrowing its primary commercial focus to two high-conviction verticals: Retail (anchored by Secure Gift Cards) and CPG (driven by Digital Link and regulatory mandates). A new organizational design has been implemented, including the appointment of a Chief Revenue Officer to unify global sales, partnerships, and customer success under a single point of accountability. The go-to-market strategy is shifting from a generalized sales approach to purpose-built teams for Retail and CPG to ensure repeatable and forecastable revenue motions. Management is transitioning other industries (Pharma, Media, Government) to a horizontal model reached primarily through partners to maintain capital and operational efficiency. The Secure Gift Card program has moved from proof-of-concept to live production, supported by a newly integrated end-to-end supply chain of ecosystem partners. Original 2026 year-end ARR growth targets have been retracted due to a significant contract reduction and timing delays in gift card program alignments. Meaningful ARR growth from the gift card initiative is now expected to materialize starting in late Q4 2026 and throughout 2027. The CPG vertical is positioned to benefit from external forcing functions, specifically the GS1 Sunrise 2027 initiative and the EU Digital Product Passport mandate. Management plans to complete the senior go-to-market leadership build-out by the end of Q3 2026, followed by adding account executive capacity through Q4. Future growth assumptions rely on a 360-degree customer engagement model designed to increase retention and maximize upsell opportunities ahead of contract decision points. Ending ARR declined to $11.6 million from $15.9 million year-over-year, primarily due to a $3.1 million contract expiration and a $2.6 million reduction from a government-related customer. Efforts are underway to restructure the reduced government agreement, which could potentially restore lost ARR, though the timing and outcome remain uncertain. Q2 operating expenses included $700,000 in severance costs related to the former CEO transition. The company identified AI agent authentication and content provenance as significant future opportunities that are not yet resourced as primary verticals. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management believes these sectors offer the greatest technological differentiation and the ability to build an 'impenetrable moat,' particularly in gift card security. These verticals already have proven solutions in production, such as the 45,000 SKU rollout for a global CPG distributor. Management declined to commit to additional upside for the remainder of 2026, citing the heavy lifting required for partnership and infrastructure alignment. Significant demand build-up is expected to translate into revenue toward the end of Q4 2026 and early 2027. Investment is being prioritized toward the go-to-market build-out, with over 90% of planned investment directed at sales and marketing teams. The company aims to execute this build-out in a 'cost-neutral way' where possible while pursuing growth. Management noted that the majority of recent churn was concentrated in two specific customers due to factors outside the company's control. These two customers now represent less than 10% of ending ARR, significantly reducing overall customer concentration risk.

Interested in Digimarc Corporation? Here are five stocks we like better. Digimarc is restructuring its commercial operations around retail and consumer packaged goods (CPG), where it sees the strongest product differentiation. The retail pipeline has expanded more than 30-fold, with over 31 retailers evaluating or deploying its Secure Gift Card solution. Second-quarter performance weakened: revenue fell to $7.4 million from $8 million, while ending ARR declined to $11.6 million from $15.9 million due to major contract expirations and reductions. The company no longer expects to meet its original year-end ARR growth target. Digimarc ended the quarter with $8.8 million in cash and no debt, but used $1.03 million in operating cash flow. More than 90% of planned capital-raising investments will support the company’s go-to-market expansion. Digimarc (NASDAQ:DMRC) outlined a commercial restructuring centered on retail and consumer packaged goods, while reporting lower second-quarter revenue and annual recurring revenue following previously disclosed customer contract changes. Chief Executive Officer Paul Carreiro, who said he was 30 days into the role, described the company’s primary challenge as commercial execution rather than technology differentiation. He said the company is building a more focused go-to-market organization designed to convert its digital and physical watermarking technology into more repeatable and forecastable revenue. → AST SpaceMobile Earnings Just Reminded Investors How Risky Space Can Be Carreiro said Digimarc will concentrate dedicated sales resources on retail and CPG, which he characterized as the company’s most developed verticals and the areas where its current product portfolio has the greatest differentiation. In retail, the company is emphasizing its Secure Gift Card solution, which is deployed chainwide at Schnucks across 115 stores. Carreiro said gift card fraud represents measurable financial leakage for retailers and that Digimarc has built partnerships across the card issuance, point-of-sale, scanning, card production, serialization and packaging supply chain. → Nebius’ Q2 Beat Shows the AI Bottleneck Is Capacity, Not Demand The company’s partners include Blackhawk Network and InComm for card issuance and distribution; Zebra Technologies, Datalogic and Honeywell for point-of-sale and scanning infrastructure; Graph-Tech USA and SDL Labels for card production and serialization; and WestRock for packaging integration. Carreiro said Digimarc’s retail pipeline has grown more than 30 times since the start of the year, when it was working with one retailer. The company now has more than 31 large and mid-sized retailers in stages ranging from initial discussions to pilots and production rollouts. → On Holding's Price Stumble May Be an Opening for a Company Built to Run Chief Financial Officer Charles Beck said two additional retailers have committed to deploy the Secure Gift Card solution across their stores. One is expected to begin rolling out later in August, while another is scheduled to begin in October. A large retailer that had postponed a pilot because of software availability constraints is now planning a smaller pilot in September, with the objective of supporting a broader deployment beginning in the first quarter of 2027, Beck said. Several other retailers are planning rollouts during the first half of 2027. Carreiro said he did not anticipate additional gift-card-program revenue that he could commit to for the balance of 2026, as the company and its partners build demand through the second half of the year. Within CPG, Carreiro highlighted a global rollout of the company’s Digimarc Digital Link platform covering 45,000 SKUs for a global manufacturer and distributor. He said the company sees external demand drivers from the GS1 Sunrise 2027 initiative and the European Union’s Digital Product Passport mandate. Digimarc has hired a chief revenue officer with responsibility for quota, pipeline and forecasting across verticals, as well as a vice president of retail solutions. Carreiro said the company expects to add one or two senior hires by the end of August or September and complete its senior leadership buildout by the end of the third quarter. The company plans to add account executive capacity through the third and fourth quarters. The planned structure includes dedicated retail and CPG sales teams, revenue operations, value engineering, marketing, product leadership and partner ecosystem management. Carreiro said the company will move pharma, life sciences, media and technology, and most government opportunities to a more partner-led, horizontal approach rather than maintaining dedicated vertical sales capacity. He also said Digimarc will implement a “360-degree customer engagement model,” with go-to-market teams engaging accounts ahead of contract decision points to support retention, upselling and cross-selling. The company plans to conduct an investor roadshow in coming weeks led by Carreiro and Beck. Digimarc reported second-quarter revenue of $7.4 million, down from $8 million in the same period last year. Subscription revenue declined to $3.7 million from $4.6 million, primarily due to a customer contract that expired in October 2025. Service revenue increased to $3.6 million from $3.4 million, with contributions from commercial and government business. Ending ARR was $11.6 million, compared with $15.9 million a year earlier. Subscription gross margin increased to 89% from 85%. Service gross margin increased to 60% from 59%. Operating expenses were $16.7 million, compared with $13.1 million a year earlier. GAAP net loss per diluted share was $0.54, compared with a loss of $0.38 per share a year earlier. Non-GAAP net loss per diluted share improved to $0.08 from $0.11. Beck said the ARR decline reflected the expiration of a $3.1 million contract in October 2025 and a $2.6 million contract reduction in June 2026, partly offset by $1.5 million in net ARR growth. The reduction stemmed from two projects canceled after the government end customer changed requirements. Digimarc is working with its direct customer to restructure that agreement, pursue recertification of three legacy projects and seek certification for two new projects. Beck said those efforts could restore a meaningful portion of lost ARR and potentially increase ARR, but the timing and outcome remain uncertain. Given the contract reduction, no committed upsell from that customer and limited time left in the year, Beck said Digimarc no longer expects to achieve its original target for significant ARR growth by year-end. The company still expects meaningful ARR growth from gift cards as deployments progress, though that opportunity has shifted by several quarters. Digimarc ended the quarter with $8.8 million in cash and short-term investments and no debt. The company used $1.03 million of cash flow during the quarter, spent $600,000 repurchasing shares associated with employee equity programs, and raised $300,000 through its at-the-market program at an average share price of $12.59. Carreiro said more than 90% of planned investment from its capital-raising efforts is expected to support the go-to-market buildout, while the company seeks to execute the expansion in as cost-neutral a manner as possible. Digimarc Corporation is a technology company specializing in digital identification and authentication solutions. Its core offering centers on embedding imperceptible digital watermarks into images, audio, video and packaging materials. These watermarks carry unique identifiers that enable secure tracking, brand protection and content provenance across print and digital channels. The company's product suite includes software development kits and cloud-based services that allow enterprises to integrate digital watermarking into their existing workflows. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Digimarc Q2 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for August 2026.

Narrowing our Aperture to Accelerate BEAVERTON, Ore., August 13, 2026--(BUSINESS WIRE)--Digimarc Corporation (NASDAQ: DMRC) reported financial results for the second quarter ended June 30, 2026. "We are already starting to see early signs that our re-modeled execution focus and discipline are paying off, and the results are showing up in our pipeline across both Retail and CPG," said Paul Carreiro, Digimarc CEO. "This is a company with world leading technology that the global Central Bank Counterfeit Deterrence Group (CBCDG) has trusted for over 25 years and with global brands as customers, and now the leadership and structure forming to scale — I'm confident this is just the beginning." Second Quarter 2026 Financial Results Total revenue for the second quarter of 2026 was $7.4 million compared to $8.0 million for the second quarter of 2025. Subscription revenue for the second quarter of 2026 was $3.7 million compared to $4.6 million for the second quarter of 2025. The decrease reflects $0.8 million of lower commercial subscription revenue from the expiration of a commercial contract in October 2025. Service revenue for the second quarter of 2026 was $3.6 million compared to $3.4 million for the second quarter of 2025. The increase primarily reflects higher service revenue from existing commercial and government customers. Ending ARR(1) as of June 30, 2026 was $11.6 million compared to $15.9 million as of June 30, 2025. The decrease primarily reflects the expiration of a commercial contract in October 2025 that accounted for $3.1 million of ARR and the step-down in another commercial contract in June 2026 that accounted for $2.6 million of ARR, partially offset by $1.5 million of net increases to ARR from new and existing commercial contracts. Gross profit margin for the second quarter of 2026 was 58% compared to 59% for the second quarter of 2025. Subscription gross profit margin(2) increased to 89% from 85% and service gross profit margin(2) increased to 60% from 59% for the second quarter of 2026 compared to the second quarter of 2025. Non-GAAP gross profit margin for the second quarter of 2026 was 83% compared to 80% for the second quarter of 2025. Operating expenses for the second quarter of 2026 were $16.7 million compared to $13.1 million for the second quarter of 2025. The increase primarily reflects increases of stock-based compensation expense of $4.0 million and professional services costs of $0.4 million, partially offset by decreases in cash compensation of $0.3 million, software and hardware costs of $0.2 million, and other costs of $0.4 million. The $4.0 million increase in stock-based compensation expense includes $5.4 million of one-time expense related to the acceleration of unvested equity awards held by our former CEO, partially offset by $1.4 million of lower stock-based compensation expense largely due to a lower number of employee stock grants. The $0.4 million increase in professional services costs includes $0.4 million of one-time costs associated with the recent corporate reorganization. The $0.3 million decrease in cash compensation costs includes $1.0 million of lower costs largely due to lower headcount, partially offset by one-time cash severance costs of $0.7 million paid to our former CEO. Non-GAAP operating expenses for the second quarter of 2026 were $8.1 million compared to $8.9 million for the second quarter of 2025. Net loss for the second quarter of 2026 was $12.1 million or ($0.54) per diluted share compared to $8.2 million or ($0.38) per diluted share for the second quarter of 2025. Non-GAAP net loss for the second quarter of 2026 was $1.7 million or ($0.08) per diluted share compared to $2.3 million or ($0.11) per diluted share for the second quarter of 2025. At June 30, 2026, cash, cash equivalents and marketable securities totaled $8.8 million compared to $12.9 million at December 31, 2025. Free cash flow usage for the second quarter of 2026 was $1.0 million compared to $5.0 million for the second quarter of 2025. Conference Call Digimarc will hold a conference call today (Thursday, August 13, 2026) to discuss strategic priorities, quarterly highlights, and these financial results. CEO Paul Carreiro and CFO Charles Beck will host the call starting at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). A question and answer session will follow management’s prepared remarks. The conference call and investor presentation will be broadcast live and available for replay here and in the investor section of the company’s website. The investor presentation will also be posted to the company’s website shortly before the call. For those who wish to call in via telephone to ask a question, please dial the number below at least five minutes before the scheduled start time. We encourage you to also login to the live broadcast so you can follow along with the investor presentation. Toll Free number: 877-407-0832 International number: 201-689-8433 Conference ID number: 13754823 About Digimarc Digimarc Corporation (NASDAQ: DMRC) is building the trust layer for the modern world. As AI accelerates how we produce, share, and interact with the world, the risks of fraud, counterfeiting, and misinformation are growing exponentially. Our innovative, highly scalable, and ultra-secure solutions make it possible for consumers, businesses, and intelligent systems to instantly verify what's real, protect what matters, and transact with confidence. Digimarc's solutions for loss prevention, authentication, and digital are built to counter the speed and sophistication of today's AI-enabled threats. Trusted by the world's central banks to deter the counterfeiting of global currency, we exist to protect truth in every interaction, spanning both the physical and digital worlds. Learn more at Digimarc.com. Forward-Looking Statements Except for historical information contained in this release, the matters described in this release contain various "forward-looking statements." These forward-looking statements include statements identified by terminology such as "will," "should," "may," "expects," "estimates," "predicts" and "continue" or other derivations of these or other comparable terms. These forward-looking statements are statements of management’s opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied from the statements in this release as a result of changes in economic, business and regulatory factors. More detailed information about risk factors that may affect actual results are outlined in the company’s Form 10-K for the year ended December 31, 2025, and in subsequent periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date of this release. Except as required by law, Digimarc undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this release. Non-GAAP Financial Measures This release contains the following non-GAAP financial measures: Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, Non-GAAP net loss per diluted share, and free cash flow. See below for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. These non-GAAP financial measures are an important measure of our operating performance because they allow management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing non-cash and non-recurring activities that affect comparability. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons. Digimarc believes that providing these non-GAAP financial measures, together with the reconciliation to GAAP, helps management and investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules. These non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP. In order to facilitate a clear understanding of its consolidated historical operating results, investors should examine Digimarc’s non-GAAP financial measures in conjunction with its historical GAAP financial information, and investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, GAAP financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. View source version on businesswire.com: https://www.businesswire.com/news/home/20260813515950/en/ Contacts Company Contact:Charles BeckChief Financial [email protected] +1 503-469-4721

Interested in Digimarc Corporation? Here are five stocks we like better. Digimarc’s secure gift card business is gaining traction, with its first commercial order closed in Q1 and rollout discussions expanding to 15 North American retailers. However, one broader launch has been pushed to January 2027 because of scanner vendor firmware timing issues. Core recurring revenue improved sequentially: ending ARR was $15 million, up 9% from Q4, though still below the prior year due to two lost customer contracts. Excluding those contracts, ARR rose year over year, and the company still expects significant ARR growth in 2026. Digimarc is seeing upsell momentum in anti-counterfeiting and digital trust, including three anti-counterfeiting upsells and a six-figure digital trust upsell with a global tech company. The company continues to position its watermarking and C2PA-based solutions around AI-era content verification and authenticity. Digimarc (NASDAQ:DMRC) reported sequential annual recurring revenue growth in the first quarter of 2026 while outlining progress and timing changes in its secure gift card, anti-counterfeiting and digital trust initiatives. Chief Executive Riley McCormack said the company made “significant progress” in advancing adoption of its secure gift card solution, including the first commercial order for the product and a growing number of retailer discussions. Chief Financial Officer Charles Beck said ending ARR was $15 million in the first quarter, down from $20 million a year earlier but up 9% sequentially. → MercadoLibre Boldly Invests in Growth: Discount Deepens The year-over-year decline in ARR reflected the previously disclosed loss of two customer contracts in 2025, which accounted for $6.8 million of ARR, Beck said. Excluding those two contracts, ARR increased $1.8 million year over year, including $500,000 of ARR from gift cards in the first quarter. McCormack said Digimarc closed its first secure gift card commercial order in the quarter, representing more than $500,000 of ARR and covering gift cards from six closed-loop and open-loop brands. The company is now advancing rollout plans with 15 North American retailers, including eight of the 20 largest by sales, up from eight retailers and four of the top 20 at the time of the company’s prior earnings call two months earlier. → Rocket Lab Just Hit a New All-Time High—Time to Buy or Let It Breathe? McCormack said market engagement has increased across retailers, brands and gift card networks, citing industry summits and meetings with large retailers and a leading program manager. He said some retailers are encouraging major brands to adopt Digimarc’s solution and are engaging with other retailers to create incentives for widely sold brands to move faster. Digimarc’s rollout with Schnucks is underway, McCormack said. During the question-and-answer portion of the call, he said Schnucks had expanded the cards from 10 stores to 15 stores and is moving toward all of its locations. “They’re very happy with the solution, and we’re really thrilled with them as a wonderful partner,” McCormack said. → MP Materials Is Quietly Building a Rare Earth Powerhouse However, another retailer’s rollout planned for the summer will be more limited than originally expected, with a full rollout to nearly 600 locations now targeted for January 2027. McCormack attributed the delay to scanner vendor firmware timing, saying two scanner models did not become generally available in the required timeframe, including one model critical to the retailer’s front end. He said the issue was not related to Digimarc’s software, but to base functionality needed for the retailer to push firmware updates at scale. The scanner vendor has since shipped updated firmware, which is undergoing the retailer’s normal acceptance testing. Beck said the timing shift means gift cards are no longer expected to be the largest contributor to ARR growth in 2026, though the company still expects “significant ARR growth” for the year. He said the change reflects timing of initial rollouts rather than a change in Digimarc’s conviction in the opportunity. Digimarc also reported momentum in its product authentication business. McCormack said ARR from the company’s anti-counterfeiting solution continues to grow, driven by upsells and new customer wins. In the first quarter, Digimarc closed three upsell deals with existing anti-counterfeiting customers in pharmaceuticals, food and beverage, and consumer goods. Asked what was driving the anti-counterfeiting upsells, McCormack said it varied by customer. “Sometimes it’s adding new brands, sometimes it’s adding new geography, sometimes it’s adding new functionality,” he said. In digital trust and integrity, McCormack said Digimarc secured a six-figure upsell with a global technology company that adopted its leak detection solution for web content. He also said the company is progressing discussions with an industry trade group seeking an industrywide solution to a problem made worse by advances in artificial intelligence. McCormack emphasized Digimarc’s positioning around digital watermarking and the Coalition for Content Provenance and Authenticity, or C2PA, standard. He also said the company is developing an extension of its “trust layer” strategy aimed at agentic AI, where autonomous systems may need scalable ways to verify what is real, authentic and authorized. Total revenue for the first quarter was $7.6 million, down from $9.4 million in the same quarter last year. Beck said the $1.8 million decline was evenly split between subscription and service revenue. Subscription revenue was $4.4 million, down from $5.3 million a year earlier. Service revenue was $3.2 million, down from $4.1 million a year earlier. Subscription gross margin was 90%, up 400 basis points year over year. Service gross margin was 57%, compared with 65% a year earlier. Beck said subscription revenue would have increased $600,000 excluding the two lost customer contracts, which contributed $1.5 million of subscription revenue in the prior-year quarter. Service revenue in the year-ago period included $500,000 from HolyGrail 2.0 recycling projects, compared with none in the latest quarter. He said Digimarc does not expect further service revenue from HolyGrail 2.0 because that program has ended. Operating expenses were $11.7 million, down 36% from $18.2 million a year earlier. Beck said the decline reflected lower cash compensation costs due to reduced headcount, severance costs incurred last year, and lower consulting, software and hardware costs. Those savings were partly offset by $1.2 million in one-time legal and other costs tied to the corporate reorganization, as well as $500,000 in higher stock-based compensation. Digimarc reported a net loss of $0.32 per diluted share, compared with a loss of $0.55 per diluted share in the prior-year quarter. On a non-GAAP basis, the company reported a loss of $0.07 per diluted share, compared with a loss of $0.40 per diluted share a year earlier. Digimarc ended the quarter with $10 million in cash and short-term investments and no debt. The company used a little under $2 million in free cash flow and $900,000 to buy back 169,000 shares as part of its employee stock program. Beck said free cash flow usage improved by $3.7 million from the prior-year period despite revenue headwinds and a $3.4 million unfavorable change in working capital and other activity. Beck also said Digimarc expects to finalize its new corporate structure, which shareholders approved, on or around May 16. The change will result in a new CUSIP, and transfer agent Broadridge will contact investors about exchanging shares. McCormack said Digimarc remains focused on three core areas: retail loss prevention, product authentication, and digital trust and integrity. He also said the company continues to selectively pursue opportunities outside those focus areas, including recycling, where Belgian and German market demonstrations remain on track. Digimarc Corporation is a technology company specializing in digital identification and authentication solutions. Its core offering centers on embedding imperceptible digital watermarks into images, audio, video and packaging materials. These watermarks carry unique identifiers that enable secure tracking, brand protection and content provenance across print and digital channels. The company's product suite includes software development kits and cloud-based services that allow enterprises to integrate digital watermarking into their existing workflows. This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected]. The article "Digimarc Q1 Earnings Call Highlights" was originally published by MarketBeat. View MarketBeat's top stocks for May 2026.

Image source: The Motley Fool. Tuesday, May 12, 2026 at 5 p.m. ET Chief Executive Officer — Riley McCormack Chief Financial Officer — Charles Beck Need a quote from a Motley Fool analyst? Email [email protected] Riley McCormack: Thank you, Charles, and hello, everyone. On this call, we will walk through Digimarc's Q1 performance, highlight our strategic progress across product innovation and commercial execution, share updates on financial metrics such as ARR and free cash flow, and provide clarity on where we are focused in 2026. In Q1, we made significant progress in advancing adoption of our Secure Gift Card solution. As we shared on our last call, during Q1, we achieved a critical milestone by signing our first commercial order covering 6 Closed-Loop and Open-Loop brands. We also made headway in laying the rails for additional orders and are currently advancing initial rollout plans with 15 North American retailers, including 8 of the 20 largest as measured by sales, an increase from 8 and 4, respectively, since our call only 2 months ago. We secured upsells with 3 existing customers of our Anti-counterfeiting solution. We continue to execute against a large opportunity in Digital Trust & Integrity, securing a 6-figure upsell with an existing customer while progressing a natural and exciting extension of our trust layer strategy that provides a critical unmet need for scalable agentic AI. And we continue to add key talent across our company, especially in our go-to-market functions, including the recent addition of 2 accomplished sales leaders who have hit the ground running. Touching on our financial highlights in Q1. We grew ending ARR 9% sequentially, while also expanding our subscription gross margin 400 basis points year-over-year. We ended the quarter with $10 million of cash and investments and no debt, and we expect to implement our new corporate structure shortly, allowing us to realize the benefits discussed on our last call. As a reminder, our 3 focus areas are Retail Loss Prevention, Product Authentication, and Digital Trust & Integrity, and we serve these markets with the 7 solutions you see listed on this slide. In addition, we continue to selectively engage outside our 3 focus areas when the opportunities represent low distraction revenue and/or advance our positioning in longer-term strategic areas. Starting with an update on Retail Loss Prevention. We continue to make progress towards gaining widespread adoption of our Secure Gift Card solution, aided by the industry's hyper-focus on finding an answer to the fraud that is creating an existential threat to their business. Results to date demonstrate the power of our solution, significant fraud reduction, improved checkout experience and high scalability across printers, brands and retailers, all without any adverse impact on sales. As a reminder, we have posted a gift card investor supplemental on the Investor Relations section of our website, a hyper link to which can be found on this slide. We appreciate the feedback we have received regarding the benefit the supplemental has provided in helping investors better understand the opportunity ahead. We are experiencing a noticeable uptick in market pull for our solution as the level of retailer brand and gift card network engagement has increased meaningfully, even from our last earnings call just 2 months ago. Before I provide more details on that increased engagement, I want to provide an update on the 2 rollouts we shared on our last call. First, the rollout to all Schnucks locations is underway. Next, the summer rollout with the other retailer mentioned will be more limited than originally planned with the full almost 600 location rollout now targeted for January 2027. As discussed in our March call, the greatest source of timing risk has been the scanner vendors shipping generally available versions of their firmware running our latest software. While 8 scanner models were GA's in the requisite time frame we highlighted on that call, 2 were not, including one model critical to this retailer's front end. This delay had nothing to do with our software. Instead, it was related to base functionality key to enabling the retailer to push any firmware update in a scalable fashion leading to the smaller summer launch. The scanner vendor has subsequently shipped the updated firmware, which is currently undergoing normal acceptance testing by the retailer. Importantly, this retailer's commitment to their customers and their belief that our solution will help protect those customers remains unchanged. We look forward to partnering with them in the months and years ahead. April is a busy month in the gift card industry as both large gift card networks, host summits, enabling their ecosystems to coordinate ahead of the holiday season. As a result of these summits as well as many other meetings, including an event at our headquarters attended by representatives from 2 very large retailers and a leading program manager, we are now advancing rollout plans with 15 North American retailers, including 8 of the 20 largest as measured by sales. This represents a meaningful increase in both metrics since our Q4 call only 2 months ago. This momentum is being driven not only by us but also by key industry participants and in the last few weeks alone, we have heard about retailers proactively engaging with major brands to encourage their adoption of our solution as well as with other retailers to increase incentive for widely sold brands to speed their adoption. Similar momentum building actions are being undertaken by the networks and key brands, and we are focused on orchestrating the multiple moving parts to ensure initial rollouts proceed as quickly and excellently as possible. As discussed on our last call, in Q1, we closed our first Secure Gift Card commercial order, representing over $500,000 of ARR. This order included gift cards from 6 Closed-Loop and Open-Loop brands. Just as we are on the retailer side, we continue to expand our number of brand engagements, including some of the largest Open-Loop and Closed-Loop issuers, comprising both third-party and first-party opportunities. In addition to being a large market itself, we have discussed the value we see in Secure Gift Cards opening opportunities in a much larger retail loss prevention market. Lighting up retailers for our gift card solution provides us a key technological footprint as our software will be widely distributed across their front of store scanners. It also creates Digimarc champions in both operations and loss prevention, two teams that often have competing priorities and where we stand out with our ability to deliver value to both. This unique position should aid us in cross-selling additional solutions into our retailer customers as well as provide us differentiated and invaluable voice to market for the advancement of new solution candidates. We are already seeing encouraging signs that provide validation of the strategy. Multiple retailers have expressed an early interest in our Product Swap Prevention solution, including one very large retailer who in addition asked about our ability to solve another problem today and the industry are facing counterfeit coupons. Without losing focus on the opportunity immediately in front of us, we are excited to engage further across all these opportunities, including the expiration of this new potential solution for counterfeit coupons as we believe our work in product authentication provides us a valuable foundation upon which to build. Turning now to Product Authentication. ARR from our Anti-counterfeiting Solution continues to grow, driven by customer upsell and new customer wins. Brands faced rampant counterfeiting and IP theft with bad actors advancing their technology and processes to replicate packaging and security features with alarming accuracy, something made ever easier by the advancement of AI. Decentralized supply chains and omnichannel sales make counterfeit detection more difficult, putting brands in a reactive position against emerging threats. Many security measures require trained inspectors and specialized tools, limiting accessibility, increasing costs and reducing scalability. Digimarc's secure and scalable, covert and connected proactive solution provides superior results when compared to competing analog solutions such as tags, codes, inks and labels. We closed 3 upsell deals with existing customers of our Anti-counterfeiting solution in Q1. These brands represent leading companies from different industries, pharmaceuticals, food and beverage and consumer goods, highlighting the wide applicability of our solution across many different verticals. We are fortunate to have some of the largest and most well-known companies in the world as valued customers. As we have repeatedly stated, when we solve our customers' most challenging problems, we expect to benefit from the further upsell and cross-sell revenue generation for a long time. Turning now to Digital Trust & Integrity. We continue to execute against this large and greenfield opportunity. Problems of trust and integrity in the digital domain existed prior to the advent of AI, but AI has created new ones while making prior ones worse and/or harder to solve. The work of C2PA has created wide awareness that our technology addresses many of these problems and our history, our credibility, our expertise, our experience and our first to market with and co-leadership of the digital watermarking component of the C2PA standard are all coalescing to ensure we are well positioned to surf ever-growing wave. We secured a 6-figure upsell with the global technology company that has adopted the Leak Detection for web content solution we discussed on our last call. We progressed discussions with the important industry trade group we have previously mentioned that is searching for an industry-wide solution to a problem they previously felt unsolvable. As a result, we expect to soon enter direct conversations with the leading companies in this industry regarding our ability to help them solve this and other problems made worse by the advance of AI. And we're seeing engagement with U.S. government innovation programs. Digimarc has been included as a potential participant in the SOFWERX Field Forward Technology Sprint, an early but tangible sign that our technology is relevant in contested mission-critical environments. Touching quickly on product innovation in the large and rapidly evolving Digital Trust & Integrity space, we are progressing a natural extension of our trust layer strategy that directly aligns with our existing IP and operating history and addresses a critical unmet need for scalable agentic AI. While the ultimate direction in how we attack this opportunity is being shaped by real-time industry engagement, the idea that enterprises will require an ultra-scalable way to verify what is real, authentic and authorized as AI systems become more autonomous, is gaining widespread acceptance. And providing an ultra-scalable way to verify what is real authentic and authorized is an area we believe we have a unique right to win. Agents act at machine speed, negotiating, transacting and moving information without any human review. This not only increases the attack surface, it makes the agents themselves part of that surface. Existing software security architectures were built on the underlying assumption of human involvement, a premise that is rapidly eroding. As agents shift from content creation for human review to truly autonomous action, technology must replicate human experience and judgment, or agentic utility will remain constrained by limitations placed on the tasks they are entrusted to undertake. While we are focused on our authentication use cases, we continue to support identification use cases that could drive future growth. We are advancing our position in these longer-term strategic areas and are confident in our ability to win when the time is right to pursue them. The Belgian and German market demonstrations of our recycling solution remain on track, and we are eager for the results. We believe these live cradle-to-rebirth activities will result in the production of new fractions of PCR feedstock that is not possible using current sorting technologies, providing tangible proof of our solutions' ability to, among other things, create new end markets for recycled plastic. As a reminder, we believe this capability is crucial to the industry's ability to comply with the sunrise of the EU's Packaging and Packaging Waste Regulation. We have also closed 2 upsell deals with existing Engage customers, one in Q1 and another already in Q2. I will now turn the call over to Charles to discuss our financial results. Charles Beck: Thank you, Riley. Ending ARR for Q1 was $15 million compared to $20 million for Q1 last year. The decrease reflects the previously disclosed loss of 2 customer contracts in 2025, which accounted for $6.8 million of ARR. Excluding these 2 items, ARR grew $1.8 million year-over-year which included $500,000 of ARR from gift cards in Q1 this year. Sequential ARR growth was 9%. Looking ahead, we still expect to deliver significant ARR growth in 2026 although the composition of that growth has changed. As a result of the scanner delays Riley mentioned, we no longer expect Gift Cards to be the largest contributor. This is purely a result of timing of initial rollouts as opposed to our conviction in the opportunity. There is tangible market pull for our solution and the level of retailer brand and gift card network engagement has meaningfully increased. Total revenue for Q1 was $7.6 million, a decrease of $1.8 million from $9.4 million in Q1 last year, with the change equally split between subscription and service revenue. Subscription revenue, which accounted for 58% of total revenue for the quarter, decreased $900,000 from $5.3 million to $4.4 million. Excluding the impact of the 2 contracts I referenced earlier, which accounted for $1.5 million of subscription revenue in Q1 last year, subscription revenue would have increased $600,000. Service revenue decreased $800,000 from $4.1 million to $3.2 million. Service revenue in Q1 last year included $500,000 of revenue from HolyGrail 2.0 recycling projects compared to none this year. We don't expect further service revenue from HolyGrail 2.0 as that program has ended and HolyGrail 2030 is focused on deploying end-to-end market demonstrations. Subscription gross profit margin was 90% for the quarter, 4 points higher than Q1 last year, largely reflecting lower subscription platform costs. We continue to drive down our platform costs, which year-over-year are now down $300,000. Service gross profit margin was 57% for the quarter, down 8 points from 65% in Q1 last year. The decrease was due to an abnormally favorable mix of revenue and cost in Q1 last year. Service gross profit margin has routinely been in the high 50s. Operating expenses were $11.7 million for the quarter, down $6.5 million or 36% from $18.2 million in Q1 last year. The large decrease reflects $7.4 million in lower cash compensation costs due to lower headcount and $3.2 million in severance costs incurred last year, lower consulting costs of $500,000 and lower software and hardware cost of $300,000. These cost savings were partially offset by higher onetime legal and other costs of $1.2 million related to the corporate reorganization and $500,000 higher stock compensation expense. While we continue to be vigilant pursuing ways to operate more efficiently and effectively to ensure that we are maximizing the return of every dollar we spend, as mentioned on our two prior calls, we are increasing our overall investment in the business to support the growth ahead. Non-GAAP operating expenses, which exclude noncash and nonrecurring items, were $8.1 million for the quarter, down $8.4 million or 51% from $16.5 million in Q1 last year. The large decrease reflects aforementioned lower cash compensation, consulting and software and hardware costs. Net loss per diluted share for the quarter was $0.32 versus $0.55 in Q1 last year. Non-GAAP net loss per diluted share for the quarter was $0.07 versus $0.40 in Q1 last year. Regarding cash flow, we ended the quarter with $10 million in cash and short-term investments with no debt. We used a little under $2 million in free cash flow and $900,000 of buyback stock as part of our employee stock program. The stock buyback of 169,000 shares was higher than in recent quarters as more shares typically vest in Q1 than in any other quarter due to the timing of our annual compensation cycle. Free cash flow usage grew $3.7 million from Q1 last year. The improvement was despite a headwind to revenue and an unfavorable change in working capital and other activity of $3.4 million year-over-year. The change in working capital was largely due to the timing amount of cash receipts and payments. Reiterating what I've shared previously, working capital can swing significantly quarter-to-quarter based on timing, which is why we believe that non-GAAP net income or loss is a better proxy for normalized free cash flow. Our non-GAAP net loss improved $6.9 million or 81% from $8.5 million in Q1 last year to $1.6 million in Q1 this year. As a reminder, in Q1 each year, we incur roughly $500,000 of costs related to public company year-end expenses. Excluding these costs, our Q1 non-GAAP loss would have been $1.1 million. For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that will be filed with the SEC. Before I wrap up, I did want to mention that we will be attending 2 upcoming investor conferences. The first is Needham, which is tomorrow, and the second is Oppenheimer, which is in mid-August. We will keep you all informed of any investor conferences we plan to attend. Also, we expect to finalize our new corporate structure, which was approved by shareholders on or around May 16. The new corporate structure will result in a CUSIP change. Our transfer agent, Broadridge will be contacting investors directly on how to exchange shares. I will now turn the call back over to Riley for final remarks. Riley McCormack: Thank you, Charles. In the wake of the relentless acceleration of AI models and agents, a vacuum of trust and authenticity is being created. Trust is fast becoming the only currency that matters and the future will belong to companies that make that currency scalable. We believe Digimarc is ideally positioned to lead that charge. We are focused on delivering a future where humans and intelligent systems alike can verify what's real, protect what matters and move forward with confidence, spanning across both the physical and digital worlds. We're building the trust layer for the modern world, a foundation that is needed now more than ever and is emerging as a significant opportunity we were created to lead. Digimarc is capitalizing on the convergence of key trends driving increased demand for our solutions, positioning ourselves as one of the select software companies to benefit from, not be a casualty of the relentless advance of AI. We grew Ending ARR 9% sequentially, while expanding our subscription gross margin 400 basis points year-over-year. We are advancing our Secure Gift Card solution by aligning key industry partners as we progress towards widespread adoption of our solution. We signed our first commercial order and are progressing initial rollout plans with 15 North American retailers including 8 of the 20 largest as measured by sales, a significant increase in both metrics since our last earnings call only 2 months ago. ARR from our anticounterfeiting solution continues to grow, driven by customer upsells and new customer wins. In Q1, we secured 3 upsells from existing customers, representing leading companies from 3 different verticals. We continue to execute against the large opportunity in the exciting and greenfield Digital Trust & Integrity space, securing a 6-figure upsell with a global technology company, advancing engagement with important force multipliers and progressing a natural and exciting extension of our trust layer strategy that directly aligns with our existing IP and operating history and provides a critical unmet need for scalable agentic AI. We added key talent across go-to-market functions, including 2 accomplished sales leaders. We continue to be well positioned to address very large problems outside of our current focus areas when the markets are ripe. We are eager for the results of the 2 upcoming end-to-end market demonstrations of our recycling solution as we believe they will show our ability to help the industry comply with the sunrise on the EUs PPWR. Stacy, will now open up the call for questions. Operator: [Operator Instructions] First question comes from Jeff Van Rhee with Craig Hallum. Daniel Hibshman: This is Daniel on for Jeff. On the rollout plans with the 15 North American retailers, just to be clear on that, is this at the point where they are vetting the solution? Or are they -- actually so far as to say that they're all planning fully on buying. They're just refining how and when they roll out. Just any color on -- or maybe you can split it up into several buckets in terms of where those prospects typically are, but any color on where those 15 are in the process? Riley McCormack: Yes, of course, Daniel. So obviously, we're talking to more than 15. The 15 that we mentioned on the call is that we're advancing rollout plans. And it's a mix. It's initial rollout planning to weekly execution calls and on-site visits to even some limited in-store testing. And in addition, besides the more direct -- I mentioned we're talking to more than 15. Beyond just these conversations, we're also having -- we're hosting broader industry events, whether they be virtual meetings or events at our headquarters, providing venues for multiple retailers and brands to not just talk to us, but talk to each other about how we really drive fast and light adoption. Daniel Hibshman: Okay. That's helpful. That definitely puts some meat on the bones there. And then on the anti-counterfeiting customers, the 3 that upsold, is there any commonality you can point to in terms of what's driving those upsells, whether that's the level of technology that they're embedding where you're seeing customers coming in and typically embedding more technology or that's sort of natural flow of the life of the customer where they're scaling the deployment up or pricing changes? Just anything you can call out about what's driving that, especially in commonalities in the business? Riley McCormack: Yes, it's a mix. Sometimes it's adding new brands, sometimes it's adding new geographies, sometimes it's adding new functionality. And so it's a mix across all of those metrics. Daniel Hibshman: Okay. That's helpful. And then last of all, just in regards to Schnucks, just any additional thoughts on how that rollout is pacing relative to expected? And then just anything else on the feedback you're hearing there? Riley McCormack: Yes, it's underway. It's all we really want to say at that point, but we truly value them as a partner as our initial retailer partner. Those cards have been in store. So they're expanding to all of their stores, but they've been carrying cards at 15 stores. Initially, it was 10. They added another 5 stores a couple of months ago, and they're very happy with the solution, and we're really thrilled with them as a wonderful partner. Operator: [Operator Instructions] I would like to turn the floor over to Riley for closing remarks. Riley McCormack: Okay. Well, thank you, everyone, for dialing in today's call. We hope you have a wonderful rest of your day, and look forward to seeing some of you tomorrow. Have a great night. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. Before you buy stock in Digimarc, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Digimarc wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. 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As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Digimarc (DMRC) Q1 2026 Earnings Transcript was originally published by The Motley Fool

BEAVERTON, Ore., May 12, 2026--(BUSINESS WIRE)--Digimarc Corporation (NASDAQ: DMRC) reported financial results for the first quarter ended March 31, 2026. "Digimarc is capitalizing on the convergence of key trends driving increased demand for our solutions, positioning ourselves to benefit from the relentless advance of AI," said Riley McCormack, Digimarc CEO. "In Q1 2026, we made significant progress against our strategy of building the trust layer for the modern world while delivering a 9% sequential increase in ending ARR(1) and expanding our subscription gross profit margin(2) 400 basis points year-over year." First Quarter 2026 Financial Results Subscription revenue for the first quarter of 2026 was $4.4 million compared to $5.3 million for the first quarter of 2025. The decrease reflects $1.5 million lower subscription revenue from the expiration of two commercial contracts in 2025, partially offset by an increase from new and existing commercial contracts. Service revenue for the first quarter of 2026 was $3.2 million compared to $4.1 million for the first quarter of 2025. The decrease primarily reflects $0.5 million of lower commercial service revenue from HolyGrail 2.0 recycling projects, as that work was previously completed. Total revenue for the first quarter of 2026 was $7.6 million compared to $9.4 million for the first quarter of 2025. ARR(1) as of March 31, 2026 was $15.0 million compared to $20.0 million as of March 31, 2025. The decrease primarily reflects the expiration of two commercial contracts, one in April 2025 that accounted for a total of $3.7 million of ARR and the other in October 2025 that accounted for $3.1 million of ARR, partially offset by $1.8 million of net increases to ARR from new and existing commercial contracts. Gross profit margin for the first quarter of 2026 was 60% compared to 65% for the first quarter of 2025. Subscription gross profit margin(2) increased to 90% from 86% and service gross profit margin(2) decreased to 57% from 65% for the first quarter of 2026 compared to the first quarter of 2025. Non-GAAP gross profit margin for the first quarter of 2026 was 83% compared to 81% for the first quarter of 2025. Operating expenses for the first quarter of 2026 were $11.7 million compared to $18.2 million for the first quarter of 2025. The decrease primarily reflects $4.2 million of lower cash compensation costs largely due to lower headcount and $3.2 million of lower cash severance costs resulting from the reduction in force in the first quarter of 2025, partially offset by $1.0 million of legal costs associated with the corporate reorganization. Non-GAAP operating expenses for the first quarter of 2026 were $8.1 million compared to $16.5 million for the first quarter of 2025. Net loss for the first quarter of 2026 was $7.0 million or ($0.32) per diluted share compared to $11.7 million or ($0.55) per diluted share for the first quarter of 2025. Non-GAAP net loss for the first quarter of 2026 was $1.6 million or ($0.07) per diluted share compared to $8.5 million or ($0.40) per diluted share for the first quarter of 2025. At March 31, 2026, cash, cash equivalents and marketable securities totaled $10.0 million compared to $12.9 million at December 31, 2025. Free cash flow usage for the first quarter of 2026 was $2.0 million compared to $5.6 million for the first quarter of 2025. Conference Call Digimarc will hold a conference call today (Tuesday, May 12, 2026) to discuss these financial results and to provide a business update. CEO Riley McCormack and CFO Charles Beck will host the call starting at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). A question and answer session will follow management’s prepared remarks. The conference call and investor presentation will be broadcast live and available for replay here and in the investor section of the company’s website. The conference call script and investor presentation will also be posted to the company’s website shortly before the call. For those who wish to call in via telephone to ask a question, please dial the number below at least five minutes before the scheduled start time. We encourage you to also login to the live broadcast so you can follow along with the investor presentation. Toll Free number: 877-407-0832 International number: 201-689-8433 Conference ID number: 13754826 About Digimarc Digimarc Corporation (NASDAQ: DMRC) is building the trust layer for the modern world. As AI accelerates how we produce, share, and interact with the world, the risks of fraud, counterfeiting, and misinformation are growing exponentially. Our innovative, highly scalable, and ultra-secure solutions make it possible for consumers, businesses, and intelligent systems to instantly verify what's real, protect what matters, and transact with confidence. Digimarc's solutions for loss prevention, authentication, and digital are built to counter the speed and sophistication of today's AI-enabled threats. Trusted by the world's central banks to deter the counterfeiting of global currency, we exist to protect truth in every interaction, spanning both the physical and digital worlds. Learn more at Digimarc.com. Forward-Looking Statements Except for historical information contained in this release, the matters described in this release contain various "forward-looking statements." These forward-looking statements include statements identified by terminology such as "will," "should," "may," "expects," "estimates," "predicts" and "continue" or other derivations of these or other comparable terms. These forward-looking statements are statements of management’s opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied from the statements in this release as a result of changes in economic, business and regulatory factors. More detailed information about risk factors that may affect actual results are outlined in the company’s Form 10-K for the year ended December 31, 2025, and in subsequent periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date of this release. Except as required by law, Digimarc undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this release. Non-GAAP Financial Measures This release contains the following non-GAAP financial measures: Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, Non-GAAP net loss per diluted share, and free cash flow. See below for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. These non-GAAP financial measures are an important measure of our operating performance because they allow management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing non-cash and non-recurring activities that affect comparability. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons. Digimarc believes that providing these non-GAAP financial measures, together with the reconciliation to GAAP, helps management and investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules. These non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP. In order to facilitate a clear understanding of its consolidated historical operating results, investors should examine Digimarc’s non-GAAP financial measures in conjunction with its historical GAAP financial information, and investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, GAAP financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. View source version on businesswire.com: https://www.businesswire.com/news/home/20260512814692/en/ Contacts Company Contact: Charles Beck Chief Financial Officer [email protected] +1 503-469-4721

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Achieved a critical milestone with the first commercial order for Secure Gift Cards covering 6 brands, representing over $500,000 in ARR. Expanded retailer engagement for Secure Gift Cards to 15 North American retailers, including 8 of the top 20, driven by an industry 'hyper-focus' on existential fraud threats. Secured 3 upsells in Product Authentication across pharmaceutical, food and beverage, and consumer goods sectors, validating the solution's cross-vertical applicability. Advanced the 'trust layer' strategy to address the unmet need for scalable agentic AI, positioning Digimarc to verify authenticity as AI systems become more autonomous. Improved subscription gross margins by 400 basis points year-over-year through a $300,000 reduction in subscription platform costs. Maintained a selective engagement strategy outside core focus areas, such as the EU recycling demonstrations, to capture low-distraction revenue and long-term strategic positioning. Management expects significant ARR growth in 2026, though the composition has shifted away from Gift Cards being the largest contributor due to third-party scanner firmware delays. The full 600-location rollout for a major retailer has been rescheduled for January 2027, contingent on the successful acceptance testing of recently shipped scanner firmware. Anticipates direct engagement with leading companies in an undisclosed industry trade group to solve AI-driven problems previously considered unsolvable. Expects the new corporate structure to be finalized around May 16, 2026, enabling operational benefits and resulting in a CUSIP change for shareholders. Assumes that upcoming recycling demonstrations in Belgium and Germany will provide proof-of-concept for compliance with the EU's Packaging and Packaging Waste Regulation. Reported a year-over-year ARR decrease from $20 million to $15 million, primarily due to the previously disclosed loss of two large customer contracts in 2025. Identified scanner vendor firmware delays as a primary timing risk; while Digimarc's software was ready, base functionality issues in 2 of 10 scanner models hindered scalable deployment. Incurred $1.2 million in one-time legal and reorganization costs related to the corporate restructuring, partially offsetting significant reductions in cash compensation. Noted that while Gift Card rollout timing has shifted, the underlying retailer commitment and market pull remain unchanged. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management clarified that these 15 retailers are in active 'rollout planning,' which ranges from weekly execution calls and on-site visits to limited in-store testing. The company is hosting industry events at its headquarters to facilitate peer-to-peer discussions between retailers and brands to drive 'fast and light' adoption. The upsells were driven by a combination of customers adding new brands to the platform, expanding into new geographic territories, and adopting additional software functionality. The rollout to all Schnucks locations is currently underway following successful performance at an initial 15-store pilot. Management emphasized that the partner is satisfied with the solution's performance and fraud reduction capabilities.