Revenue Performance - Subscription revenue for Q3 2025 decreased to $4.6 million, down from $5.3 million in Q3 2024, primarily due to the expiration of a commercial contract contributing $0.8 million [3]. - Service revenue for Q3 2025 decreased to $3.1 million from $4.2 million in Q3 2024, reflecting a $0.7 million decline in government service revenue and a $0.4 million decrease in commercial service revenue [4]. - Total revenue for Q3 2025 was $7.6 million, a decrease from $9.4 million in Q3 2024 [4]. - Annual recurring revenue (ARR) as of September 30, 2025, was $15.8 million, down from $18.7 million as of September 30, 2024, primarily due to the expiration of a commercial contract worth $3.5 million [5]. Profitability Metrics - Gross profit margin for Q3 2025 decreased to 58% from 62% in Q3 2024, with subscription gross profit margin remaining flat at 86% [6]. - GAAP gross profit for Q3 2025 was $4,446 million, down from $5,897 million in Q3 2024, representing a decrease of 24.6% [20]. - Non-GAAP gross profit margin improved to 81% in Q3 2025 compared to 79% in Q3 2024 [20]. - Net loss for Q3 2025 was $8.2 million, or ($0.38) per share, compared to a net loss of $10.8 million, or ($0.50) per share, in Q3 2024 [8]. - GAAP net loss for the nine months ended September 30, 2025, was $28,102 million, a slight improvement from a loss of $30,362 million in the same period of 2024 [24]. - Non-GAAP net loss for the nine months ended September 30, 2025, was $13,085 million, compared to $16,524 million in the same period of 2024, indicating a reduction of 20.5% [20]. - The company reported a GAAP loss per share (diluted) of $(1.30) for the nine months ended September 30, 2025, compared to $(1.43) for the same period in 2024 [20]. Cash Flow and Expenses - Operating expenses for Q3 2025 decreased to $12.8 million from $17.3 million in Q3 2024, mainly due to a $5.4 million reduction in cash compensation costs [7]. - Free cash flow usage for Q3 2025 decreased to $3.1 million from $7.3 million in Q3 2024 [9]. - Free cash flow for the nine months ended September 30, 2025, was $(13,709) million, compared to $(22,849) million in the same period of 2024 [24]. Assets and Liabilities - Total current assets decreased to $21,756 million as of September 30, 2025, from $39,331 million at December 31, 2024 [22]. - Cash and cash equivalents, along with marketable securities, totaled $12,562 million at the end of Q3 2025, down from $33,686 million at the end of Q3 2024 [24]. - Total liabilities decreased slightly to $14,048 million as of September 30, 2025, from $14,407 million at December 31, 2024 [22]. - Stock-based compensation increased to $8,896 million for the nine months ended September 30, 2025, compared to $7,939 million in the same period of 2024 [24]. Strategic Initiatives - The company launched a new digitized security label solution aimed at replacing low-value holograms and signed a pilot with a major pharmaceutical company for product authentication [2]. - Digimarc is positioning itself to capitalize on the digital authentication market in 2026 and beyond, with a growing pipeline of opportunities [2].

Group 1 - Digimarc Corporation has launched digitally watermarked security labels aimed at combating product counterfeiting and restoring consumer trust [1][3] - The new labels utilize advanced encrypted, covert, and highly copy-resistant watermarks that are optimized for various label material substrates [2] - The security labels offer an affordable and scalable method of authentication, supporting both single and two-factor authentication options [3] Group 2 - The labels can be scanned with a mobile device, either through an app or without one, enhancing accessibility for consumers [2] - Digimarc Corporation operates in the digital watermarking solutions sector, both in the US and internationally [4] - While Digimarc shows potential as an investment, there are other AI stocks that may offer greater upside potential and less downside risk [4]

Core Points - A lawsuit is currently pending for investors in Digimarc Corporation (NASDAQ: DMRC) regarding alleged securities law violations [2][3] - The lawsuit claims that Digimarc failed to disclose that a major commercial partner would not renew a significant contract on the same terms, which would negatively impact the company's subscription and annual recurring revenue [2] - The court has appointed a lead plaintiff for the case as of September 2, 2025 [3] Summary by Sections Lawsuit Details - Investors who purchased shares of Digimarc prior to May 2024 and continue to hold those shares have options to pursue [1] - The plaintiff alleges that the company's positive statements about its business and prospects were materially misleading due to undisclosed contract renegotiations [2] Legal Representation - The Shareholders Foundation, Inc. is facilitating communication for affected investors and is not a law firm [3]

Core Insights - Digimarc Corporation has launched digitally watermarked security labels aimed at providing 100% verifiable product authentication [1] - These labels utilize advanced encrypted, covert, and highly copy-resistant watermarks optimized for various label material substrates [1] - The new labels can be integrated with QR codes to facilitate low-friction, two-step consumer interaction [1]

Financial Data and Key Metrics Changes - Ending ARR for Q2 was $15.9 million compared to $23.9 million for Q2 last year, reflecting a decrease due to lapsed contracts [21] - Total revenue was $8 million, a decrease of $2.4 million or 23% from $10.4 million in Q2 last year [23] - Subscription revenue accounted for 58% of total revenue for the quarter, decreasing 28% from $6.4 million to $4.6 million [23] - Operating expenses were $13.1 million for the quarter, down $3.7 million or 22% from $16.8 million in Q2 last year [24] - Free cash flow usage was down from $6.9 million in Q2 last year to $5 million in Q2 this year [27] Business Line Data and Key Metrics Changes - Significant progress was made in launching the gift card solution, with the first Digimarc Protected Gift Cards received by a retailer [9] - A multiyear committed deal was signed with a large European packaging company, expected to generate near 7 figures of ARR starting next year [12] - Upsell deals were signed with three existing Digimarc Validate customers, reflecting increased contract value and expansion into new geographies [13] Market Data and Key Metrics Changes - The company is focusing on three core areas: retail loss prevention, product authentication, and digital authentication, with strong demand in the gift card sector [7] - The company anticipates a reduction of up to $3 million in annual revenue due to contract renegotiations with a large retailer [18] Company Strategy and Development Direction - The company aims to build a scalable and repeatable business model, focusing on delivering trust in every interaction across physical and digital worlds [30] - The strategic shift allows the company to be less reliant on any one customer and to move more quickly with the market [19] - The company is committed to achieving positive free cash flow by Q4 2025 despite expected revenue impacts from contract renegotiations [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the opportunities provided in the key focus areas and the positive results from increased focus [19] - The company is well-positioned to lead in the digital trust space, especially with the rise of AI and the need for robust authentication solutions [29] - Management acknowledged the challenges posed by contract renegotiations but remains optimistic about future revenue growth from new products [20] Other Important Information - The company completed a corporate reorganization in Q2, resulting in a meaningful reduction in operating expenses and cash usage [6] - The company is seeing increased interest from brands not yet included in the initial rollout of the gift card solution [11] Q&A Session Summary Question: What is the GAAP OpEx run rate at the end of the quarter? - The non-GAAP operating expense run rate was $8.9 million for the quarter, with expectations for further reductions [33][34] Question: Do you have visibility into the forward year for the Central Bank business? - The company generally has at least twelve to eighteen months of forward-looking visibility but will not provide guidance unless there are material changes [36][37] Question: Was the European customer deal signed in the quarter, and did it impact reported ARR? - Yes, the deal was effective during Q2 and is included in ARR, with potential for growth in future years [40][41] Question: How many card vendors are there to work with for the gift card business? - The company will predominantly go to market through a relatively concentrated industry of gift card manufacturers, with significant collaboration with gift card networks [49][52]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited consolidated financial statements for Q2 2025 show decreased assets, a net loss, and declining revenues [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $60.7 million from $75.8 million, driven by lower cash and marketable securities, while equity declined Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $10,109 | $12,365 | | Marketable securities | $5,979 | $16,365 | | Total current assets | $25,110 | $39,331 | | Total assets | $60,746 | $75,766 | | Total current liabilities | $9,425 | $9,138 | | Total liabilities | $14,263 | $14,407 | | Total shareholders' equity | $46,483 | $61,359 | [Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported a net loss of $8.2 million for Q2 2025 and $20.0 million for the six months, with revenues declining year-over-year Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $8,010 | $10,379 | $17,378 | $20,317 | | Gross Profit | $4,707 | $6,863 | $10,792 | $13,075 | | Operating Loss | $(8,426) | $(9,982) | $(20,505) | $(20,839) | | Net Loss | $(8,220) | $(9,270) | $(19,950) | $(19,608) | | Loss per Share (basic) | $(0.38) | $(0.43) | $(0.93) | $(0.93) | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities improved to $10.2 million, while investing activities provided cash, and financing activities used cash Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,174) | $(15,252) | | Net cash provided by (used in) investing activities | $9,925 | $(5,458) | | Net cash provided by (used in) financing activities | $(2,066) | $29,868 | | Net decrease in cash and cash equivalents | $(2,256) | $9,142 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Details on Digimarc's digital watermarking business, revenue disaggregation, customer concentration, and a recent workforce reduction - Digimarc is a global leader in digital watermarking technologies, offering solutions through its Digimarc Illuminate SaaS cloud-based platform for identification and authentication of items[22](index=22&type=chunk)[23](index=23&type=chunk) Revenue by Market (in thousands) | Market | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Commercial | $4,363 | $6,257 | $10,173 | $11,976 | | Government | $3,647 | $4,122 | $7,205 | $8,341 | - The company has significant customer concentration, with **Customer A, B, and C accounting for 45%, 11%, and 10% of revenue**, respectively, in Q2 2025[53](index=53&type=chunk) - In February 2025, the company initiated a reorganization involving a global workforce reduction, incurring **$3.2 million in cash severance costs** during the first six months of 2025[99](index=99&type=chunk)[100](index=100&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes revenue decline to contract terminations and budget cuts, implementing cost-saving measures, and affirming liquidity [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Total revenue decreased by 23% due to contract expirations and lower government service revenue, while operating expenses decreased - Commercial subscription revenue was negatively impacted by the termination of a contract in April 2025 and the expiration of another in June 2024. Government service revenue is expected to be **$1.7 to $1.9 million lower** in fiscal 2025 due to a smaller approved budget from the Central Banks[121](index=121&type=chunk) - The company expects fiscal 2025 expenses to be significantly lower due to a reorganization announced in February 2025, which is projected to reduce annualized cash expenses by approximately **$16.5 million**, with an additional **$5.5 million** in other identified cost savings[124](index=124&type=chunk) Annual Recurring Revenue (ARR) (in thousands) | Date | ARR | YoY Change ($) | YoY Change (%) | | :--- | :--- | :--- | :--- | | June 30, 2025 | $15,881 | $(8,042) | (34)% | | June 30, 2024 | $23,923 | - | - | [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) Non-GAAP net loss for Q2 2025 was $2.3 million, with operating expenses decreasing due to lower cash compensation from reduced headcount Reconciliation of GAAP to Non-GAAP Net Loss (in thousands) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | GAAP net loss | $(8,220) | $(9,270) | $(19,950) | $(19,608) | | Non-GAAP net loss | $(2,269) | $(4,937) | $(10,899) | $(10,407) | - Non-GAAP operating expenses for Q2 2025 decreased by **$5.2 million** compared to Q2 2024, mainly due to **$4.9 million** in lower cash compensation costs resulting from a smaller workforce[180](index=180&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity decreased to $16.1 million, but management believes current cash is sufficient for the next 12 months due to cost reductions Liquidity Metrics (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Working capital | $15,685 | $30,193 | | Cash, cash equivalents and short-term marketable securities | $16,088 | $28,730 | - Cash used in operating activities for the first six months of 2025 decreased to **$10.2 million** from **$15.3 million** in the prior year, reflecting favorable timing of customer receipts and vendor payments[186](index=186&type=chunk) - Management believes that current cash, cash equivalents, and marketable securities balances will be sufficient to satisfy projected working capital and capital expenditure requirements for at least the next 12 months[191](index=191&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable for the current reporting period - The company stated that Quantitative and Qualitative Disclosures About Market Risk are not applicable[202](index=202&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[204](index=204&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[205](index=205&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) A putative class action complaint was filed against Digimarc and two executives on July 7, 2025, alleging federal securities law violations - A putative class action complaint was filed against the company and certain officers on July 7, 2025, alleging violations of federal securities laws[208](index=208&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor highlights potential costs and disruptions from activist shareholders and related securities litigation - A new risk factor was added regarding the potential for activist shareholders to take actions that could be costly, disrupt operations, and divert management's attention[210](index=210&type=chunk) - Volatility in the stock price resulting from activist initiatives could make the company a target of securities litigation, leading to substantial costs[210](index=210&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Digimarc repurchased 37,397 shares in Q2 2025 at an average price of $13.45 to satisfy tax withholding obligations for employee awards Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 52 | $13.08 | | May 2025 | 37,345 | $13.45 | | June 2025 | 0 | $0.00 | | **Total** | **37,397** | **$13.45** | [Other Information](index=39&type=section&id=Item%205.%20Other%20Information) No officers or directors adopted, modified, or terminated Rule 10b5-1 trading arrangements during Q2 2025 - No officers or directors adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[213](index=213&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists key exhibits filed, including the amended 2018 Incentive Plan, Employee Stock Purchase Plan, and CEO/CFO certifications - Key exhibits filed include the Digimarc Corporation 2018 Incentive Plan (as amended), the Employee Stock Purchase Plan, and certifications from the CEO and CFO[214](index=214&type=chunk)

Financial Performance - Ending ARR at June 30, 2025, was $15.9 million, compared to $23.9 million in Q2 2024[23] - Q2 2025 non-GAAP net loss was $2.3 million, a 54% improvement from Q2 2024[26] - Q2 2025 free cash flow was negative $5.0 million, a 28% improvement from Q2 2024[28] Business Highlights - The first Digimarc-protected gift cards will appear on shelves next week[8] - A new ARR from a European packaging customer signing multi-year committed contract; ARR should be just under seven figures next year[8] - Reduced Q2 operating expenses by 22% and non-GAAP operating expenses by 37%, largely reflecting the impact of cost savings from the Q1 reorganization[8] Future Outlook - The company continues to believe it is likely that it will generate both positive non-GAAP net income and positive free cash flow in Q4 2025[8] - The company expects ARR to trough in Q3 or Q4 2025, and to re-accelerate thereafter into 2026, largely from increasing penetration of its gift card solution[25] - Annualized cash cost savings from the reorganization are expected to be approximately $16.5 million[27]

[Second Quarter 2025 Financial Results](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Results) [Executive Summary](index=1&type=section&id=Executive%20Summary) Digimarc reported a Q2 2025 revenue decrease to $8.0 million, yet improved its GAAP and non-GAAP net losses through lower operating expenses - Total revenue for Q2 2025 decreased to **$8.0 million** compared to $10.4 million for Q2 2024[4](index=4&type=chunk) - GAAP net loss improved to **$8.2 million** ($0.38 per share) in Q2 2025 from $9.3 million ($0.43 per share) in Q2 2024[8](index=8&type=chunk) - Non-GAAP net loss significantly decreased to **$2.3 million** ($0.11 per share) in Q2 2025 from $4.9 million ($0.23 per share) in Q2 2024[8](index=8&type=chunk) [CEO Commentary](index=1&type=section&id=CEO%20Commentary) The CEO highlighted Digimarc's strategic focus on delivering verifiable trust and authenticity in an AI-accelerated world - Digimarc is focused on filling the vacuum of trust and authenticity created by the relentless acceleration of AI models and agents[2](index=2&type=chunk) - The company's mission is to deliver a future where humans and intelligent systems can verify what's real, protect what matters, and move forward with confidence, by making trust verifiable and authenticity scalable[2](index=2&type=chunk) - **Significant progress** was made in Q2 towards building the trust layer for the modern world[2](index=2&type=chunk) [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) Q2 2025 saw declining revenue and ARR due to contract expirations, but improved net loss and free cash flow from expense management [Revenue Performance](index=1&type=section&id=Revenue%20Performance) Revenue by Type | Revenue Type | Q2 2025 ($M) | Q2 2024 ($M) | Change ($M) | Change (%) | | :----------- | :----------- | :----------- | :---------- | :--------- | | Subscription | 4.6 | 6.4 | (1.8) | -28.1% | | Service | 3.4 | 4.0 | (0.6) | -15.0% | | Total | 8.0 | 10.4 | (2.4) | -23.1% | - Subscription revenue decrease primarily reflects the expiration of two commercial contracts that contributed **$1.9 million** in Q2 2024[3](index=3&type=chunk) - Service revenue decrease primarily reflects **$0.5 million** of lower government service revenue from the Central Banks[4](index=4&type=chunk) [Profitability](index=1&type=section&id=Profitability) Key Profitability Metrics | Metric | Q2 2025 | Q2 2024 | Change (pp) | | :-------------------------------------------- | :------ | :------ | :---------- | | GAAP Gross Profit Margin | 59% | 66% | -7 | | Non-GAAP Gross Profit Margin | 80% | 81% | -1 | | Subscription Gross Profit Margin (excl. amortization) | 85% | 89% | -4 | | Service Gross Profit Margin (excl. amortization) | 59% | 58% | +1 | [Operating Expenses](index=1&type=section&id=Operating%20Expenses) Operating Expenses Overview | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change ($M) | Change (%) | | :------------------------- | :----------- | :----------- | :---------- | :--------- | | GAAP Operating Expenses | 13.1 | 16.8 | (3.7) | -22.0% | | Non-GAAP Operating Expenses | 8.9 | 14.0 | (5.1) | -36.4% | - The decrease in GAAP operating expenses was primarily due to **$4.9 million** of lower cash compensation costs resulting from reduced headcount, partially offset by **$1.3 million** of higher stock compensation costs[7](index=7&type=chunk) [Net Loss and EPS](index=1&type=section&id=Net%20Loss%20and%20EPS) Net Loss and EPS Summary | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change ($M) | Q2 2025 EPS | Q2 2024 EPS | Change (EPS) | | :------------------- | :----------- | :----------- | :---------- | :---------- | :---------- | :----------- | | GAAP Net Loss | (8.2) | (9.3) | 1.1 | (0.38) | (0.43) | 0.05 | | Non-GAAP Net Loss | (2.3) | (4.9) | 2.6 | (0.11) | (0.23) | 0.12 | [Cash and Free Cash Flow](index=1&type=section&id=Cash%20and%20Free%20Cash%20Flow) Cash Position | Metric | As of June 30, 2025 ($M) | As of Dec 31, 2024 ($M) | Change ($M) | | :----------------------------------- | :----------------------- | :---------------------- | :---------- | | Cash, cash equivalents & marketable securities | 16.1 | 28.7 | (12.6) | Free Cash Flow | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change ($M) | | :----------------------------------- | :----------- | :----------- | :---------- | | Free Cash Flow Usage | 5.0 | 6.9 | (1.9) | | Free Cash Flow Usage (excl. severance) | 4.1 | N/A | N/A | - Free cash flow usage for Q2 2025 decreased to **$5.0 million**, and would have been **$4.1 million** excluding $0.9 million in previously accrued severance costs paid[9](index=9&type=chunk) [Annual Recurring Revenue (ARR)](index=1&type=section&id=Annual%20Recurring%20Revenue%20(ARR)) ARR Performance | Metric | As of June 30, 2025 ($M) | As of June 30, 2024 ($M) | Change ($M) | Change (%) | | :----- | :----------------------- | :----------------------- | :---------- | :--------- | | ARR | 15.9 | 23.9 | (8.0) | -33.5% | - The **$8.0 million decrease in ARR** primarily reflects the expiration of two commercial contracts that accounted for a total of **$9.3 million** of ARR, partially offset by increases from new and existing commercial contracts[5](index=5&type=chunk) - Annual Recurring Revenue (ARR) is defined as the aggregation of annualized subscription fees from all commercial contracts as of the measurement date[10](index=10&type=chunk) [Detailed Financial Statements](index=4&type=section&id=Detailed%20Financial%20Statements) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) The company reported lower revenues but reduced its net loss for Q2 and YTD 2025 through significant operating expense reductions [Revenue Breakdown](index=4&type=section&id=Revenue%20Breakdown) Revenue by Type | Revenue Type | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :----------- | :----------- | :----------- | :------------ | :------------ | | Subscription | 4,624 | 6,380 | 9,938 | 12,142 | | Service | 3,386 | 3,999 | 7,440 | 8,175 | | Total Revenue| 8,010 | 10,379 | 17,378 | 20,317 | [Cost of Revenue and Gross Profit](index=4&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Profit) Gross Profit Analysis | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | Total Cost of Revenue | 3,303 | 3,516 | 6,586 | 7,242 | | Total Gross Profit | 4,707 | 6,863 | 10,792 | 13,075 | | Total Gross Profit Margin | 59% | 66% | 62% | 64% | | Subscription Gross Profit Margin (excl. amortization) | 85% | 89% | 85% | 88% | | Service Gross Profit Margin (excl. amortization) | 59% | 58% | 63% | 57% | [Operating Expenses (GAAP)](index=4&type=section&id=Operating%20Expenses%20(GAAP)) GAAP Operating Expenses | Expense Type | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------- | :----------- | :----------- | :------------ | :------------ | | Sales and marketing | 3,231 | 5,616 | 8,309 | 11,152 | | Research, development and engineering | 4,536 | 6,644 | 12,170 | 13,385 | | General and administrative | 5,078 | 4,314 | 10,259 | 8,834 | | Amortization expense on acquired intangible assets | 288 | 271 | 559 | 543 | | Total Operating Expenses | 13,133 | 16,845 | 31,297 | 33,914 | [Net Loss and Per Share Amounts (GAAP)](index=4&type=section&id=Net%20Loss%20and%20Per%20Share%20Amounts%20(GAAP)) GAAP Net Loss and EPS | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | Net Loss | (8,220) | (9,270) | (19,950) | (19,608) | | Loss per share — basic | (0.38) | (0.43) | (0.93) | (0.93) | | Loss per share — diluted | (0.38) | (0.43) | (0.93) | (0.93) | | Weighted average shares outstanding — basic | 21,608 | 21,392 | 21,565 | 21,061 | [Reconciliation of GAAP to Non-GAAP Financial Measures](index=5&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Financial%20Measures) This section details adjustments for non-cash items to reconcile GAAP results with non-GAAP measures for clearer core performance evaluation [Non-GAAP Gross Profit](index=5&type=section&id=Non-GAAP%20Gross%20Profit) Reconciliation of GAAP to Non-GAAP Gross Profit | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | GAAP gross profit | 4,707 | 6,863 | 10,792 | 13,075 | | Amortization of acquired intangible assets | 1,205 | 1,132 | 2,337 | 2,272 | | Amortization and write-off of other intangible assets | 219 | 209 | 438 | 421 | | Stock-based compensation | 253 | 156 | 390 | 409 | | Non-GAAP gross profit | 6,384 | 8,360 | 13,957 | 16,177 | | Non-GAAP gross profit margin | 80% | 81% | 80% | 80% | - In Q2 2025, management updated its definition of Non-GAAP gross profit to adjust for the amortization of patent maintenance costs, now reflected in 'amortization and write-off of other intangible assets'[21](index=21&type=chunk) [Non-GAAP Operating Expenses](index=5&type=section&id=Non-GAAP%20Operating%20Expenses) Reconciliation of GAAP to Non-GAAP Operating Expenses | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | GAAP operating expenses | 13,133 | 16,845 | 31,297 | 33,914 | | Depreciation and write-off of property and equipment | (138) | (198) | (284) | (391) | | Amortization of acquired intangible assets | (288) | (271) | (559) | (543) | | Amortization and write-off of other intangible assets | (227) | (31) | (201) | (164) | | Amortization of lease right of use assets under operating leases | (103) | (86) | (201) | (173) | | Stock-based compensation | (3,518) | (2,250) | (4,641) | (4,828) | | Non-GAAP operating expenses | 8,859 | 14,009 | 25,411 | 27,815 | [Non-GAAP Net Loss and EPS](index=5&type=section&id=Non-GAAP%20Net%20Loss%20and%20EPS) Reconciliation of GAAP to Non-GAAP Net Loss and EPS | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | GAAP net loss | (8,220) | (9,270) | (19,950) | (19,608) | | Total adjustments to gross profit | 1,677 | 1,497 | 3,165 | 3,102 | | Total adjustments to operating expenses | 4,274 | 2,836 | 5,886 | 6,099 | | Non-GAAP net loss | (2,269) | (4,937) | (10,899) | (10,407) | | GAAP loss per share (diluted) | (0.38) | (0.43) | (0.93) | (0.93) | | Non-GAAP loss per share (diluted) | (0.11) | (0.23) | (0.51) | (0.49) | [Free Cash Flow](index=5&type=section&id=Free%20Cash%20Flow) Reconciliation to Free Cash Flow | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | Cash flows from operating activities | (4,688) | (6,830) | (10,174) | (15,252) | | Purchase of property and equipment | (198) | (26) | (253) | (132) | | Capitalized patent costs | (120) | (90) | (208) | (196) | | Free cash flow | (5,006) | (6,946) | (10,635) | (15,580) | [Consolidated Balance Sheet Information](index=6&type=section&id=Consolidated%20Balance%20Sheet%20Information) Total assets decreased to $60.7 million as of June 30, 2025, driven by a reduction in cash and marketable securities [Assets](index=6&type=section&id=Assets) Key Asset Accounts | Asset Type | June 30, 2025 ($K) | Dec 31, 2024 ($K) | Change ($K) | Change (%) | | :------------------------------- | :----------------- | :---------------- | :---------- | :--------- | | Cash and cash equivalents | 10,109 | 12,365 | (2,256) | -18.2% | | Marketable securities | 5,979 | 16,365 | (10,386) | -63.5% | | Total current assets | 25,110 | 39,331 | (14,221) | -36.2% | | Total assets | 60,746 | 75,766 | (15,020) | -19.8% | - Aggregate cash, cash equivalents, and marketable securities decreased from **$28.7 million** at December 31, 2024, to **$16.1 million** at June 30, 2025[23](index=23&type=chunk) [Liabilities and Shareholders' Equity](index=6&type=section&id=Liabilities%20and%20Shareholders'%20Equity) Key Liability and Equity Accounts | Category | June 30, 2025 ($K) | Dec 31, 2024 ($K) | Change ($K) | Change (%) | | :------------------------------- | :----------------- | :---------------- | :---------- | :--------- | | Total current liabilities | 9,425 | 9,138 | 287 | 3.1% | | Total liabilities | 14,263 | 14,407 | (144) | -1.0% | | Total shareholders' equity | 46,483 | 61,359 | (14,876) | -24.2% | | Accumulated deficit | (370,728) | (350,778) | (19,950) | -5.7% | [Consolidated Cash Flow Information](index=7&type=section&id=Consolidated%20Cash%20Flow%20Information) For YTD 2025, the company saw improved operating cash flow and a significant inflow from investing activities [Operating Activities](index=7&type=section&id=Operating%20Activities) Cash Flow from Operations | Metric | YTD 2025 ($K) | YTD 2024 ($K) | Change ($K) | | :-------------------------------------- | :------------ | :------------ | :---------- | | Net cash provided by (used in) operating activities | (10,174) | (15,252) | 5,078 | - Net cash used in operating activities **decreased by $5.1 million** year-over-year for the six months ended June 30, 2025, indicating improved operational cash management[25](index=25&type=chunk) [Investing Activities](index=7&type=section&id=Investing%20Activities) Cash Flow from Investing | Metric | YTD 2025 ($K) | YTD 2024 ($K) | Change ($K) | | :-------------------------------------- | :------------ | :------------ | :---------- | | Proceeds from maturities of marketable securities | 13,741 | 9,623 | 4,118 | | Purchases of marketable securities | (3,355) | (14,753) | 11,398 | | Net cash provided by (used in) investing activities | 9,925 | (5,458) | 15,383 | - Net cash provided by investing activities significantly improved to **$9.9 million** in YTD 2025 from a usage of $5.5 million in YTD 2024, primarily due to higher proceeds from marketable securities maturities and lower purchases[25](index=25&type=chunk) [Financing Activities](index=7&type=section&id=Financing%20Activities) Cash Flow from Financing | Metric | YTD 2025 ($K) | YTD 2024 ($K) | Change ($K) | | :-------------------------------------- | :------------ | :------------ | :---------- | | Issuance of common stock, net of issuance costs | — | 32,218 | (32,218) | | Purchase of common stock | (2,048) | (2,332) | 284 | | Net cash provided by (used in) financing activities | (2,066) | 29,868 | (31,934) | - Net cash used in financing activities was **$2.1 million** in YTD 2025, a significant change from the $29.9 million provided in YTD 2024, mainly due to the absence of common stock issuance in 2025[25](index=25&type=chunk) [Company Information and Disclosures](index=2&type=section&id=Company%20Information%20and%20Disclosures) [Conference Call Details](index=2&type=section&id=Conference%20Call%20Details) Digimarc hosted a conference call on August 14, 2025, to discuss Q2 2025 financial results and provide a business update - A conference call was held on Thursday, August 14, 2025, at 5:00 p.m. Eastern time to discuss financial results and provide a business update[11](index=11&type=chunk) - The call was hosted by CEO Riley McCormack, CFO Charles Beck, and CLO George Karamanos[11](index=11&type=chunk) - The conference call and investor presentation were broadcast live and made available for replay on the company's website[12](index=12&type=chunk) [About Digimarc](index=3&type=section&id=About%20Digimarc) Digimarc is a global leader in digital watermarking technologies, specializing in identifying and authenticating physical and digital items - Digimarc Corporation is the pioneer and global leader in digital watermarking technologies, with nearly **30 years of innovation** and intellectual property[14](index=14&type=chunk) - Their technologies are deployed at massive scale for the identification and authentication of physical and digital items, including a partnership with central banks to deter counterfeiting of global currency[14](index=14&type=chunk) - Digimarc supports global industry standards efforts and was named to the **Fortune 2023 Change the World list** and honored as a 2023 Fast Company World Changing Ideas finalist[14](index=14&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements subject to various assumptions, risks, and uncertainties detailed in SEC filings - The release contains 'forward-looking statements' identified by terminology such as 'will,' 'should,' 'expects,' 'estimates,' and 'predicts,' which are statements of management's opinion[15](index=15&type=chunk) - These statements are subject to various assumptions, risks, uncertainties, and changes in circumstances, and actual results may vary materially due to changes in economic, business, and regulatory factors[15](index=15&type=chunk) - Readers are cautioned not to place undue reliance on these forward-looking statements, and Digimarc undertakes no obligation to publicly update or revise them, except as required by law[15](index=15&type=chunk) [Non-GAAP Financial Measures Disclosure](index=3&type=section&id=Non-GAAP%20Financial%20Measures%20Disclosure) The report includes supplemental non-GAAP financial measures to evaluate core operating results by removing non-cash and non-recurring activities - The release contains non-GAAP financial measures (e.g., Non-GAAP gross profit, operating expenses, net loss, free cash flow) to allow management, investors, and analysts to evaluate core operating results by removing non-cash and non-recurring activities[16](index=16&type=chunk) - Management uses these non-GAAP financial measures in evaluating financial and operational decision-making and for period-to-period comparisons[16](index=16&type=chunk) - Investors should examine non-GAAP financial measures in conjunction with historical GAAP financial information and not consider them in isolation or as substitutes for GAAP performance measures, as definitions may vary between companies[17](index=17&type=chunk)

Core Viewpoint - Rosen Law Firm is reminding investors who purchased securities of Digimarc Corporation during the specified class period of the upcoming lead plaintiff deadline for a class action lawsuit [1][2]. Group 1: Class Action Details - The class period for the Digimarc securities is from May 3, 2024, to February 26, 2025 [1]. - Investors may be entitled to compensation without any out-of-pocket fees through a contingency fee arrangement [1]. - A class action lawsuit has already been filed, and interested parties must move the Court to serve as lead plaintiff by July 8, 2025 [2]. Group 2: Law Firm Credentials - Rosen Law Firm has a strong track record in securities class actions, having achieved the largest settlement against a Chinese company at the time [3]. - The firm was ranked No. 1 by ISS Securities Class Action Services for the number of settlements in 2017 and has consistently ranked in the top 4 since 2013 [3]. - In 2019, the firm secured over $438 million for investors [3]. Group 3: Case Allegations - The lawsuit alleges that Digimarc made false and misleading statements regarding a large commercial partner's contract renewal and its impact on subscription and annual recurring revenue [4]. - The misleading statements led to investor damages when the true details were revealed [4].

Core Viewpoint - The Gross Law Firm has issued a notice to shareholders of Digimarc Corporation regarding a class action lawsuit due to alleged misleading statements and omissions that affected the company's stock value during a specified period [1][3]. Summary by Relevant Sections Class Period and Allegations - The class period for the lawsuit is from May 3, 2024, to February 26, 2025 [3]. - Allegations include that Digimarc's management failed to disclose that a significant commercial partner would not renew a large contract on the same terms, leading to a renegotiation that would adversely affect subscription revenue and annual recurring revenue [3]. Next Steps for Shareholders - Shareholders who purchased shares during the class period are encouraged to register for the class action by the deadline of July 7, 2025 [4]. - Once registered, shareholders will receive updates through a portfolio monitoring software regarding the case's progress [4]. Law Firm's Commitment - The Gross Law Firm aims to protect investors' rights and seeks recovery for those who suffered losses due to deceitful practices by companies [5].