Core Viewpoint - A class action lawsuit has been filed against Digimarc Corporation for allegedly misleading investors about its business prospects, particularly regarding a significant contract renewal and its impact on revenue [1][2]. Group 1: Allegations and Financial Impact - The complaint alleges that Digimarc failed to disclose that a major commercial partner would not renew a large contract on the same terms, leading to a renegotiation of the contract [2]. - As a result of the contract issues, Digimarc's subscription revenue decreased by 10% to $5.0 million in Q4 2024, down from $5.6 million the previous year [3]. - The annual recurring revenue (ARR) also fell to $20.0 million from $22.23 million, primarily due to a $5.8 million decrease in ARR linked to the expiration of a commercial contract in June 2024 [3]. Group 2: Stock Market Reaction - Following the release of the financial results on February 26, 2025, Digimarc's stock price plummeted by $11.65, or 43.1%, closing at $15.39 per share on February 27, 2025 [3]. Group 3: Legal Proceedings - Shareholders interested in participating in the class action must file their papers with the court by May 9, 2025, to serve as lead plaintiff [4]. - A lead plaintiff represents the interests of other class members in the litigation process [4].

Core Viewpoint - A class action lawsuit has been filed against Digimarc Corporation for alleged securities fraud and unlawful business practices [2][3]. Financial Performance - Digimarc reported a 10% decrease in quarterly subscription revenue, falling to $5.0 million from $5.6 million year-over-year [3]. - The company's annual recurring revenue (ARR) decreased to $20.0 million, down from $22.23 million in the previous year, primarily due to a $5.8 million decrease linked to the expiration of a commercial contract in June 2024 [3]. - Following the financial results announcement, Digimarc's stock price dropped by $11.65 per share, or 43.1%, closing at $15.39 per share on February 27, 2025 [3].

Core Viewpoint - A shareholder class action lawsuit has been filed against Digimarc Corporation, alleging that the company made materially false and misleading statements regarding its business and operations, particularly concerning a significant commercial contract and its impact on revenue [1] Group 1: Lawsuit Details - The lawsuit claims that Digimarc failed to disclose that a large commercial partner would not renew a significant contract on the same terms [1] - As a result of the contract non-renewal, Digimarc is expected to renegotiate the large commercial contract [1] - The lawsuit suggests that these developments would adversely affect the company's subscription revenue and annual recurring revenue [1] Group 2: Investor Information - Investors who purchased shares of Digimarc between May 2, 2024, and February 26, 2025, and experienced significant losses are encouraged to discuss their legal rights [2] - The deadline for investors to request to be appointed as lead plaintiff in the case is May 9, 2025 [3] - Holzer & Holzer, LLC is noted as a top-rated securities litigation law firm that represents shareholders and investors in litigation [3]

Core Insights - Kirby McInerney LLP is investigating potential claims against Digimarc Corporation regarding possible violations of federal securities laws and unlawful business practices [1][3] - On February 26, 2025, Digimarc reported significant declines in revenue and annual recurring revenue for the fourth quarter and fiscal year ended December 31, 2025, leading to a sharp decline in share price [3] Financial Performance - Digimarc's share price fell by $11.65, approximately 43%, from $27.04 on February 26, 2025, to $15.39 on February 27, 2025, following the financial results announcement [3]

Revenue and Contracts - In 2024, Digimarc generated 41% of its revenue from a long-term contract with Central Banks, which was extended through December 31, 2029[28]. - The current contracts as of December 31, 2024, are projected to generate a minimum of $36.2 million in future revenue, down from $43.7 million as of December 31, 2023[36]. - Five customers represented approximately 76% of the company's revenue for the year ended December 31, 2024[66]. - Nearly half of the company's revenue in 2024 came from a contract with Central Banks, which expires at the end of 2029[67]. - The company expects subscription revenue in 2025 to be negatively impacted by the termination of a commercial contract that contributed $3.3 million in 2024, with an expected contribution of only $1.1 million in 2025[57]. - The company anticipates government service revenue in 2025 to be 12% to 14% lower than in 2024 due to a smaller approved budget for program work[67]. - Subscription revenue in 2025 is expected to be negatively impacted by the termination of a commercial contract that contributed $3.3 million in 2024, with an anticipated contribution of only $1.1 million in 2025[99]. Product Development and Technology - Digimarc Automate, launched in June 2024, enhances accuracy and efficiency in production and distribution, utilizing advanced digital watermarking technology[22]. - The new Digimarc Recycle sortation software, announced in October 2024, reduces hardware costs by nearly 50%, facilitating recycling and waste sortation[23]. - The Digimarc Validate mobile application, released in October 2024, provides a cost-effective tool for instant product authentication to combat counterfeiting[24]. - The introduction of next-generation digital watermarks in February 2024 improves security and access control for various use cases[20]. - The company’s digital watermarking technology faces competition from alternative technologies, which could impact its market adoption and revenue growth prospects[88]. Market and Competition - The company is expanding into new markets with the acquisition of EVRYTHNG, which involves inherent risks and unpredictability[65]. - The commercial market is in its earlier stages of development, and widespread adoption of the company's technology may take longer than anticipated, leading to continued operating losses[57]. - The company faces intense competition from existing and new technologies, which may adversely affect market acceptance of its products and services[63]. - The company relies on successful advocacy of its technology by partners, and failure to do so may hinder its ability to achieve profitable operations[60]. Financial Performance and Risks - The company incurred net losses in 2024 and 2023 primarily due to increased investments in product development and sales growth initiatives[98]. - The company has maintained a full valuation allowance against its deferred tax assets due to cumulative losses over the previous three years, indicating potential challenges in realizing these assets[101]. - The company may face risks related to the integration and management of acquisitions, which could disrupt operations and adversely affect financial results[82]. - The company has not achieved profitability in recent years, and future profitability will depend on maintaining current customers and acquiring new ones[99]. - The company is exploring potential acquisitions to complement or expand its product offerings, which may divert management's attention and incur additional expenses[82]. Legal and Compliance Risks - The company is subject to risks associated with international operations, including compliance with various international laws and regulations[75]. - The company is subject to potential infringement claims related to digital watermarking services, which could lead to costly litigation and resource diversion[109]. - Contracts may include indemnity provisions that increase the risk of third-party lawsuits, potentially resulting in significant financial liabilities[110]. - Ongoing litigation could adversely affect the company's financial condition and cash flows, with unpredictable costs associated with legal proceedings[111]. - Failure to meet delivery and performance requirements in service contracts could result in damages, increased costs, and harm to the company's reputation[112]. - Corporate governance provisions may hinder favorable acquisitions, potentially decreasing share value[113]. - Changes in financial accounting standards may affect the company's results of operations and business practices[97]. - Inability to meet regulatory or industry standards could limit growth and product development[115]. Operational Challenges - The company may experience variability in contracted arrangements, which could materially impact its financial position and cash flows[102]. - The company faces risks related to product defects or errors that could lead to claims, increased costs, and damage to reputation[118]. - The company may need to hire additional employees to meet increased demand, which could raise costs and impact short-term profitability[116]. - A reorganization announced on February 26, 2025, may affect up to 90 employees, aimed at aligning with long-term growth and profitability objectives[116]. - The company has identified risks associated with cybersecurity, including potential data breaches that could compromise sensitive information and disrupt operations[89]. Workforce and Employment - The company employs 215 full-time employees, with 109 in research, development, and engineering as of December 31, 2024[38].

Financial Data and Key Metrics Changes - Ending Annual Recurring Revenue (ARR) at the end of Q4 was $20 million, compared to $22.3 million at the end of Q4 last year, reflecting a year-on-year growth of 21% when excluding the $5.8 million commercial contract that lapsed [49][50] - Total revenue for Q4 was $8.7 million, a decrease of $600,000 or 7% from $9.3 million in Q4 last year [50] - Subscription revenue accounted for 58% of total revenue for the quarter, decreasing 10% from $5.6 million to $5 million [50][51] - For the full year, total revenue was $38.4 million, an increase of $3.6 million or 10% from $34.9 million in fiscal 2023 [54] Business Line Data and Key Metrics Changes - Subscription revenue for the year increased 18% from $19 million to $22.4 million, reflecting revenue recognized on new contracts and upsells on existing contracts [55] - Service revenue was essentially flat at $16 million, reflecting higher commercial service revenue from HolyGrail recycling projects, partially offset by lower other commercial service revenue [56] Market Data and Key Metrics Changes - The immediate Total Addressable Market (TAM) for gift cards is estimated at $900 million to $1.5 billion per year, with significant drivers expected to increase this range over time [16] - The immediate TAM for PLU fraud solutions ranges from $625 million to $1 billion per year [18] Company Strategy and Development Direction - The company is focusing on three areas under the broader authentication umbrella: assisting retailers in fighting shrink, developing physical anti-counterfeit solutions, and combating digital fraud [13][19][23] - A corporate reorganization was announced to better align operations with immediate opportunities, expected to yield annualized cash savings of approximately $16.5 million [44][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving non-GAAP profitability by no later than Q4 2025, driven by both revenue growth and cost reductions [62][67] - The company is exploring strategic alternatives, including the possibility of going private, to maximize shareholder value [42][68] Other Important Information - The company has retained PwC to conduct a detailed analysis of market opportunities, which has informed their strategic focus [9] - A significant portion of operating expenses decreased due to lower headcount and incentive compensation [53] Q&A Session Summary Question: How is the company thinking about allocating resources following the reorganization to the large commercial customer opportunity? - Management confirmed that the opportunity is still viable and that they are in ongoing discussions about potential next steps, indicating that resources can still be allocated to this opportunity while focusing on other areas [71][72][73] Question: What products and opportunities are expected to drive sequential ARR growth throughout 2025? - Management highlighted gift cards and physical anti-counterfeit solutions as the two biggest contributors to near-term sequential growth in ARR [76][78] Question: What is the expected timeline for the Belgium pilot project and its evaluation? - Management indicated that the pilot project aims to prove the higher quality and quantity of recyclate, which is crucial for compliance with upcoming regulations, and that the value of the data generated could catalyze further adoption [86][88][90]

Revenue Performance - Annual recurring revenue (ARR) decreased to $20.0 million as of December 31, 2024, down from $22.3 million as of December 31, 2023, primarily due to a $5.8 million decrease from a commercial contract expiration[3]. - Subscription revenue for Q4 2024 decreased to $5.0 million compared to $5.6 million in Q4 2023, reflecting the impact of the contract expiration[4]. - Total revenue for Q4 2024 decreased to $8.7 million, down from $9.3 million in Q4 2023[5]. - Subscription revenue for fiscal year 2024 increased to $22.4 million from $19.0 million in fiscal year 2023, driven by new and existing contracts[9]. - Total revenue for fiscal year 2024 increased to $38.4 million compared to $34.9 million in fiscal year 2023[11]. Profitability Metrics - Gross profit margin for Q4 2024 decreased to 61% from 63% in Q4 2023, while non-GAAP gross profit margin decreased to 77% from 79%[6][7]. - Net loss for Q4 2024 was $8.6 million or ($0.40) per share, an improvement from a net loss of $10.6 million or ($0.52) per share in Q4 2023[8]. - GAAP gross profit for Q4 2024 was $5,267 thousand, a decrease from $5,829 thousand in Q4 2023, while non-GAAP gross profit was $6,691 thousand compared to $7,342 thousand[26]. - Non-GAAP gross profit margin for Q4 2024 was 77%, slightly down from 79% in Q4 2023[26]. - GAAP net loss for the year ended December 31, 2024, was $39,010 thousand, an improvement from a net loss of $45,959 thousand in 2023[30]. - Non-GAAP net loss for the year ended December 31, 2024, was $21,386 thousand, compared to $26,423 thousand in 2023[30]. Cash Flow and Financial Position - Cash, cash equivalents, and marketable securities totaled $28.7 million as of December 31, 2024, compared to $27.2 million at the end of 2023[15]. - Cash and cash equivalents decreased to $12,365 thousand in 2024 from $21,456 thousand in 2023[28]. - Total current assets increased to $39,331 thousand in 2024 from $37,080 thousand in 2023, driven by an increase in marketable securities[28]. - Total liabilities decreased to $14,407 thousand in 2024 from $18,625 thousand in 2023, indicating improved financial stability[28]. - Free cash flow for the year ended December 31, 2024, was $(27,215) thousand, compared to $(22,735) thousand in 2023, reflecting increased cash usage[30]. - The company reported a net cash used in operating activities of $(26,572) thousand for the year ended December 31, 2024, compared to $(21,995) thousand in 2023[30]. - Aggregate cash, cash equivalents, and marketable securities totaled $28,730 thousand at the end of 2024, up from $27,182 thousand at the end of 2023[30]. Future Outlook - The company expects to achieve positive non-GAAP net income by Q4 2025 and meaningful positive free cash flow in fiscal year 2026 and beyond[2]. Operating Expenses - Operating expenses for fiscal year 2024 decreased to $65.5 million from $68.4 million in fiscal year 2023, primarily due to lower cash and stock compensation costs[13].

Financial Data and Key Metrics Changes - Ending ARR was $18.7 million, down from $19.6 million at the end of September last year, reflecting a decrease of $900,000 due to a delayed contract [14] - Total revenue for Q3 was $9.4 million, an increase of $500,000 or 5% from $9 million in Q3 last year [14] - Subscription revenue grew 9% from $4.8 million to $5.3 million year-over-year, accounting for 56% of total revenue [15] - Service revenue remained flat at $4.2 million year-over-year [16] - Net loss per share for the quarter was $0.50 compared to $0.53 in Q3 last year [22] - Free cash flow usage was $7.3 million for the quarter, compared to $400,000 in Q3 last year [23] Business Line Data and Key Metrics Changes - Subscription gross profit margin improved slightly to 86% in Q3 this year compared to 85% in Q3 last year [17] - Service gross profit margin improved from 54% in Q3 last year to 61% in Q3 this year [18] - Operating expenses increased to $17.3 million from $16.4 million in Q3 last year, including $600,000 of one-time severance costs [19] Market Data and Key Metrics Changes - The company noted a significant impact from the delayed renewal of a commercial contract, which is expected to include a large upsell [6][13] - The company is focusing on the gift card opportunity, expecting it to be a significant contributor to revenue in 2025 [82] Company Strategy and Development Direction - The company is prioritizing long-term value over short-term gains, as evidenced by the decision to delay contract closure for a more strategic deal [7][29] - The company is investing resources in market development and innovation, indicating a focus on transformational opportunities [5][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in closing the delayed contract, emphasizing its transformational potential for both the company and the industry [29][32] - The management acknowledged the challenges posed by the delayed contract but remains optimistic about future performance and cash flow improvements in Q4 [24][26] Other Important Information - The company is actively involved in addressing gift card fraud and regulatory pressures, positioning itself as a potential industry-wide solution [81][82] - Management highlighted the importance of strategic partnerships and customer relationships in driving future growth [70][72] Q&A Session Summary Question: What are the risks regarding the delayed commercial deal? - Management acknowledged the delay but emphasized the importance of the deal's strategic scope, indicating confidence in its eventual closure [29][32] Question: Any updates on the gift card opportunity? - Management confirmed that some gift card revenue was recorded in Q3 and expects more in Q4, anticipating significant contributions in 2025 [37][82] Question: Impact of partner relationship changes on Q3 ARR? - Management stated that the transition had no impact on ARR, reiterating the focus on the delayed contract's resource allocation [38][39] Question: How does the company operate during a contract gap? - Management clarified that while there may be gaps in specific contracts, customers retain access to other services [45][46] Question: Updates on recycling initiatives in Europe? - Management noted positive developments in recycling efforts in Europe, particularly in Belgium and Germany, and expressed optimism about future contracts [50][64] Question: Status of AI watermarking legislation? - Management expressed disappointment in the recent legislative outcome but remains hopeful for future proposals that align with their vision [75][76]

Revenue Performance - Total revenue for the three-month period ended September 30, 2024, increased by $0.4 million to $9.4 million, compared to $9.0 million for the same period in 2023, primarily driven by a $0.4 million increase in subscription revenue [106]. - Subscription revenue for the nine-month period ended September 30, 2024, increased by $4.0 million to $17.4 million, reflecting a 30% increase compared to $13.4 million for the same period in 2023 [113]. - Subscription revenue accounted for 56% of total revenue for the three-month period ended September 30, 2024, up from 53% in the same period in 2023 [105]. - Total revenue for the three months ended September 30, 2024, was $9.443 billion, reflecting a $449 million (5%) increase compared to the same period in 2023 [121]. - Total commercial revenue for the three months ended September 30, 2024, was $5.382 billion, reflecting a $658 million (14%) increase compared to the same period in 2023 [121]. Operating Expenses - Total operating expenses for the three-month period ended September 30, 2024, increased by $0.9 million to $17.3 million, compared to $16.4 million for the same period in 2023 [108]. - Total operating expenses for the nine-month period ended September 30, 2024, decreased by $0.3 million to $51.2 million, compared to $51.5 million for the same period in 2023 [109]. - Sales and marketing expenses increased by $0.3 million (5%) for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to cash severance costs of $0.6 million [136]. - Research, development, and engineering expenses rose by $0.2 million (3%) for the three months ended September 30, 2024, compared to the same period in 2023, mainly due to higher cash headcount costs [139]. - General and administrative expenses increased by $0.4 million (10%) for the three months ended September 30, 2024, compared to the same period in 2023, driven by higher professional services and consulting costs [142]. Profitability Metrics - Gross profit margin for the three-month period ended September 30, 2024, improved to 62%, compared to 58% for the same period in 2023 [104]. - Total gross profit for the three months ended September 30, 2024, increased by $0.7 million (13%) to $5.897 billion, primarily from higher subscription revenue [129]. - Subscription gross profit margin increased to 86% for the three months ended September 30, 2024, compared to 85% in the same period of 2023 [128]. - Non-GAAP gross profit for the three months ended September 30, 2024, increased by $0.5 million, primarily reflecting higher subscription revenue [162]. - Non-GAAP gross profit margin for the three months ended September 30, 2024, increased to 78% compared to 76% for the same period in 2023 [163]. Revenue Sources - Service revenue for the three-month period ended September 30, 2024, remained flat at $4.2 million compared to the same period in 2023 [115]. - Domestic revenue decreased by $0.9 million (31%) for the three months ended September 30, 2024, primarily due to $0.7 million lower subscription revenue [117]. - International revenue increased by $1.4 million (22%) for the three months ended September 30, 2024, driven by $1.1 million higher subscription revenue from international customers [119]. - Government service revenue decreased by $0.2 million (5%) for the three months ended September 30, 2024, due to timing of program work with Central Banks [123]. Financial Position - The company reported a net loss of $30.36 million for the nine months ended September 30, 2024, compared to a net loss of $35.39 million for the same period in 2023, reflecting a decrease of 14% [170]. - Cash flows used in operating activities for the nine months ended September 30, 2024, increased by $5.7 million compared to the same period in 2023, primarily due to unfavorable timing of changes in operating assets and liabilities [170]. - The company’s working capital as of September 30, 2024, was $35.41 million, up from $24.56 million as of December 31, 2023 [165]. - Total cash, cash equivalents, and marketable securities increased by $6.5 million from December 31, 2023, to September 30, 2024, primarily due to net proceeds from the issuance of common stock [166]. - Cash flows from financing activities for the nine months ended September 30, 2024, increased by $31.4 million, mainly due to $32.2 million of net cash proceeds from a registered direct stock offering [172]. Future Outlook and Risks - The company may seek additional financing to support growth initiatives, acquisitions, or investments in complementary businesses and technologies [175]. - The company anticipates that its future performance could be affected by various risk factors, including concentration of revenue among few customers and market growth opportunities [178]. - The company believes it has one of the world's most extensive patent portfolios in digital watermarking and related fields, which may impact future revenue [176]. Compliance and Controls - The company conducted an evaluation of its disclosure controls and procedures, concluding they were effective as of the end of the reporting period [181]. - There were no changes in internal control over financial reporting that materially affected the company during the three-month period ended September 30, 2024 [182]. - The company does not expect any ongoing legal proceedings to have a material adverse effect on its financial position or results of operations [183].

Revenue Performance - Annual recurring revenue (ARR) decreased to $18.7 million as of September 30, 2024, down from $19.6 million as of September 30, 2023, reflecting a $0.9 million decrease due to delayed contract renewals [3] - Subscription revenue for Q3 2024 increased to $5.3 million, compared to $4.8 million in Q3 2023, primarily driven by higher revenue from new and existing contracts [4] - Total revenue for Q3 2024 increased to $9.4 million, up from $9.0 million in Q3 2023, indicating a growth of approximately 4.4% year-over-year [5] Profitability Metrics - Gross profit margin for Q3 2024 improved to 62%, compared to 58% in Q3 2023, with subscription gross profit margin rising to 86% from 85% [6] - Non-GAAP gross profit margin for Q3 2024 increased to 78%, compared to 76% in Q3 2023, reflecting improved operational efficiency [6] - GAAP gross profit for Q3 2024 was $5,897,000, up from $5,223,000 in Q3 2023, representing a 12.9% increase [18] Operating Expenses and Losses - Operating expenses for Q3 2024 increased to $17.3 million, up from $16.4 million in Q3 2023, primarily due to severance costs and changes in labor costs [7] - Net loss for Q3 2024 was $10.8 million, or ($0.50) per share, compared to a net loss of $10.7 million, or ($0.53) per share, in Q3 2023 [8] - Non-GAAP net loss for Q3 2024 was $6,117,000, compared to $5,936,000 in Q3 2023, indicating a slight increase in losses [18] Cash and Assets - Cash, cash equivalents, and marketable securities totaled $33.7 million as of September 30, 2024, compared to $27.2 million at December 31, 2023 [8] - Total current assets increased to $44,794,000 as of September 30, 2024, compared to $37,080,000 at December 31, 2023, reflecting a 20.5% growth [19] - Cash and cash equivalents, along with marketable securities, totaled $33,686,000 at the end of Q3 2024, up from $27,182,000 at the beginning of the period [21] Liabilities and Equity - Total liabilities decreased to $14,864,000 as of September 30, 2024, from $18,625,000 at December 31, 2023, a reduction of 20.0% [20] - Shareholders' equity increased to $70,160,000 as of September 30, 2024, compared to $61,927,000 at December 31, 2023, reflecting a 13.4% increase [20] Future Outlook - The company anticipates significant future opportunities, despite current revenue not reflecting this potential [2] - Digimarc's partnership with global central banks continues to support its market position in digital watermarking technologies [13] Cash Flow - The company reported a net cash used in operating activities of $22,337,000 for the nine months ended September 30, 2024, compared to $16,679,000 for the same period in 2023 [21] - The company issued common stock net of issuance costs amounting to $32,218,000 during the nine months ended September 30, 2024 [21]