Digimarc(DMRC) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Digimarc Corporation's unaudited consolidated financial statements for Q1 2020, detailing balance sheets, operations, equity, cash flows, and notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (March 31, 2020 vs. December 31, 2019) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | | Total assets | $50,453 | $57,388 | | Total current assets | $36,647 | $43,294 | | Cash and cash equivalents | $10,250 | $11,213 | | Marketable securities | $20,320 | $25,604 | | Total liabilities | $7,710 | $7,938 | | Total shareholders' equity | $42,743 | $49,450 | - Total assets decreased by $6,935 thousand from December 31, 2019, to March 31, 2020, primarily driven by reductions in marketable securities and cash and cash equivalents[12] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (Three Months Ended March 31, 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | March 31, 2019 | | :-------------------------- | :------------- | :------------- | | Total revenue | $6,189 | $5,660 | | Service revenue | $3,738 | $3,814 | | Subscription revenue | $2,451 | $1,846 | | Gross profit | $3,991 | $3,526 | | Operating loss | $(9,055) | $(8,672) | | Net loss | $(8,908) | $(8,463) | | Loss per common share – basic | $(0.74) | $(0.74) | - Total revenue increased by 9% year-over-year, primarily driven by a 33% increase in subscription revenue, while service revenue saw a slight decrease[15] - Net loss increased to $(8,908) thousand in Q1 2020 from $(8,463) thousand in Q1 2019, with basic loss per common share remaining flat at $(0.74)[15] Consolidated Statements of Shareholders' Equity Shareholders' Equity Changes (Three Months Ended March 31, 2020) | Item | Amount (in thousands) | | :--------------------------------- | :-------------------- | | Balance at December 31, 2019 | $49,450 | | Issuance of common stock, net | $574 | | Exercise of stock options | $135 | | Stock-based compensation | $2,230 | | Net loss | $(8,908) | | Balance at March 31, 2020 | $42,743 | - Total shareholders' equity decreased from $49,450 thousand at December 31, 2019, to $42,743 thousand at March 31, 2020, primarily due to the net loss incurred during the period[18] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, 2020 vs. 2019) | Cash Flow Activity (in thousands) | March 31, 2020 | March 31, 2019 | | :-------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(5,846) | $(5,454) | | Net cash provided by investing activities | $4,912 | $2,838 | | Net cash used in financing activities | $(29) | $(387) | | Net decrease in cash and cash equivalents | $(963) | $(3,003) | | Cash and cash equivalents at end of period | $10,250 | $24,275 | - Net cash used in operating activities increased to $(5,846) thousand in Q1 2020, while net cash provided by investing activities significantly increased to $4,912 thousand, mainly due to higher net maturities of marketable securities[21] Notes to Consolidated Financial Statements 1. Description of Business and Significant Accounting Policies Describes Digimarc's business, platform, and significant accounting policies, including lease accounting and new pronouncements - Digimarc Corporation enables automatic and reliable identification and interaction with various media through its Digimarc Platform, which includes Digimarc Barcode for imperceptible data carriers, Digimarc Discover for decoding, and Digimarc Verify for quality control[24] - The company adopted ASC 842, 'Leases,' on January 1, 2019, electing not to restate comparative periods and recording right-of-use assets of $2,709 thousand and lease liabilities of $3,792 thousand upon adoption[27][29] - New accounting pronouncements issued but not yet adopted include ASU No. 2016-13 (CECL model) effective after December 15, 2022, and ASU No. 2019-12 (Income Taxes) effective after December 15, 2020, with the latter not expected to have a material impact[30][31] 2. Fair Value of Financial Instruments Presents the fair value hierarchy for financial instruments, including money market securities, commercial paper, and corporate notes Fair Value of Financial Instruments (March 31, 2020) | Instrument | Level 1 (in thousands) | Level 2 (in thousands) | Total (in thousands) | | :------------------ | :--------------------- | :--------------------- | :------------------- | | Money market securities | $5,016 | — | $5,016 | | Commercial paper | — | $20,066 | $20,066 | | Corporate notes | — | $5,043 | $5,043 | | Total | $5,016 | $25,109 | $30,125 | - The fair values of cash equivalents, accounts receivable, accounts payable, and other accrued liabilities approximate their carrying values due to their short-term nature[32] 3. Revenue Recognition Details revenue recognition policies for software development services and subscriptions, including deferred revenue balances and customer type breakdown - Revenue is primarily derived from software development services (recognized as performed) and software subscriptions (recognized over the typical one-to-three-year term)[34] Revenue by Customer Type (Three Months Ended March 31, 2020 vs. 2019) | Customer Type | March 31, 2020 (in thousands) | March 31, 2019 (in thousands) | | :------------ | :---------------------------- | :---------------------------- | | Government | $4,043 | $4,062 | | Retail | $1,261 | $744 | | Media | $885 | $854 | | Total | $6,189 | $5,660 | - Deferred revenue, representing billings in advance for services and subscriptions, totaled $3,085 thousand as of March 31, 2020, with $1,374 thousand recognized during the quarter from the prior period's contract liability balance[38] 4. Segment Information Reports on the Company's single operating segment, automatic identification solutions, with revenue breakdown by geography and major customers - The Company operates in a single reporting segment: automatic identification solutions, generating revenue through software development services and subscriptions[40] Revenue by Geographic Area (Three Months Ended March 31, 2020 vs. 2019) | Geographic Area | March 31, 2020 (in thousands) | March 31, 2019 (in thousands) | | :---------------- | :---------------------------- | :---------------------------- | | Domestic | $1,759 | $1,317 | | International | $4,430 | $4,343 | | Total | $6,189 | $5,660 | Major Customers (Percentage of Revenue) | Customer | March 31, 2020 | March 31, 2019 | | :-------------- | :------------- | :------------- | | Central Banks | 64% | 68% | | Walmart | 12% | <10% | 5. Stock-Based Compensation Details stock-based compensation expense by functional area and reports on unrecognized compensation costs for non-vested awards - Stock-based compensation expense for the three months ended March 31, 2020, was $2,195 thousand, an 8% increase from $2,037 thousand in the prior year, primarily due to more stock awards granted[48][119] Stock-Based Compensation Expense by Function (Three Months Ended March 31, 2020 vs. 2019) | Functional Area | March 31, 2020 (in thousands) | March 31, 2019 (in thousands) | | :------------------------------ | :---------------------------- | :---------------------------- | | Cost of revenue | $190 | $182 | | Sales and marketing | $479 | $519 | | Research, development and engineering | $399 | $354 | | General and administrative | $1,127 | $982 | | Total stock-based compensation expense | $2,195 | $2,037 | - Total unrecognized compensation costs related to non-vested stock-based awards were $17,641 thousand as of March 31, 2020, expected to be recognized through March 31, 2024[48][50] 6. Shareholders' Equity Reports on the issuance of common stock under an Equity Distribution Agreement, detailing shares sold and net cash proceeds - Under an Equity Distribution Agreement, the Company sold 28 thousand shares at an average price of $21.92 for net cash proceeds of $574 thousand during the three months ended March 31, 2020[54] 7. Earnings Per Common Share Presents basic and diluted earnings per common share, including the impact of anti-dilutive shares, for the reporting periods Earnings (Loss) Per Common Share (Three Months Ended March 31, 2020 vs. 2019) | Metric | March 31, 2020 | March 31, 2019 | | :-------------------------------------- | :------------- | :------------- | | Loss to common shares — basic (in thousands) | $(8,908) | $(8,463) | | Weighted average common shares outstanding — basic (in thousands) | 12,037 | 11,487 | | Basic earnings (loss) per common share | $(0.74) | $(0.74) | | Diluted earnings (loss) per common share | $(0.74) | $(0.74) | - Basic and diluted loss per common share remained at $(0.74) for both periods, with 550 thousand anti-dilutive shares excluded from diluted EPS calculations in Q1 2020[55][56] 8. Trade Accounts Receivable Details trade accounts receivable, net, including the allowance for doubtful accounts and concentration with major customers Trade Accounts Receivable, Net (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | Trade accounts receivable | $3,984 | $4,036 | | Allowance for doubtful accounts | $(25) | $(15) | | Trade accounts receivable, net | $3,959 | $4,021 | - The allowance for doubtful accounts increased to $25 thousand as of March 31, 2020, from $15 thousand at December 31, 2019[58] - Central Banks accounted for 66% of trade accounts receivable, net, as of March 31, 2020[61] 9. Property and Equipment Presents property and equipment, net, including gross amounts and accumulated depreciation and amortization Property and Equipment, Net (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------------ | :------------- | :---------------- | | Gross property and equipment | $13,034 | $12,791 | | Less accumulated depreciation and amortization | $(9,495) | $(9,141) | | Property and equipment, net | $3,539 | $3,650 | - Property and equipment, net, decreased slightly to $3,539 thousand as of March 31, 2020, from $3,650 thousand at December 31, 2019[63] 10. Intangibles Details intangible assets, net, including gross intangible assets, accumulated amortization, and capitalized patent costs Intangibles, Net (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | Gross intangible assets | $12,611 | $12,515 | | Accumulated amortization | $(5,982) | $(5,845) | | Intangibles, net | $6,629 | $6,670 | - Capitalized patent costs, amortized over 17-20 years, increased to $9,341 thousand as of March 31, 2020, from $9,245 thousand at December 31, 2019[65][68] 11. Leases Outlines the Company's adoption of ASC 842 for operating leases, detailing right-of-use assets, liabilities, and future payment obligations - The Company adopted ASC 842 for leases on January 1, 2019, and all leases are classified as operating leases[69][71] Lease Details (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | Right of use assets | $2,146 | $2,263 | | Lease liabilities, current | $624 | $663 | | Lease liabilities, long-term | $2,276 | $2,435 | | Weighted-average remaining life | 4.0 years | 4.1 years | | Weighted-average discount rate | 8.20% | 8.20% | Operating Lease Cash Payment Obligations (as of March 31, 2020) | Year ending December 31 | Cash Payment Obligations (in thousands) | | :---------------------- | :-------------------------------------- | | Remaining in 2020 | $631 | | 2021 | $838 | | 2022 | $862 | | 2023 | $867 | | 2024 | $218 | | Total lease payments | $3,416 | 12. Income Taxes Explains the 0% effective tax rate due to a full valuation allowance against deferred tax assets, which increased significantly - The effective tax rate for the three months ended March 31, 2020 and 2019, was 0% due to a full valuation allowance against deferred tax assets[74] - The valuation allowance against net deferred tax assets increased by $2,336 thousand to $50,145 thousand as of March 31, 2020, from $47,809 thousand at December 31, 2019[74] 13. Commitments and Contingencies Addresses indemnification provisions and legal proceedings, with management not expecting a material adverse effect on financial position - The Company includes indemnification provisions for third-party claims related to intellectual property in certain contracts, but no claims have been made to date[76] - Management does not believe that the resolution of current legal proceedings and claims will have a material adverse effect on its financial position, results of operations, or cash flows[76] 14. Subsequent Events Reports on the Company securing a $5,032 thousand Paycheck Protection Program loan in April 2020, intended for qualifying expenses - On April 16, 2020, the Company secured a $5,032 thousand loan under the Paycheck Protection Program (PPP) of the CARES Act, with a 1.000% interest rate and deferred interest for six months[77] - The PPP loan is subject to forgiveness if proceeds are used for qualifying expenses like payroll, rent, utilities, and mortgage interest, which the Company intends to do[77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of Digimarc's Q1 2020 financial condition and results, including revenue, expenses, liquidity, and COVID-19 impacts Overview Introduces Digimarc Corporation's platform for automatic identification, its benefits, and the Company's patent portfolio and strategic shift - Digimarc Corporation provides the Digimarc Platform, which offers identification, discovery, and verification of digitally enhanced media through Digimarc Barcode, Digimarc Discover software, and Digimarc Verify tools[82] - The Digimarc Platform offers benefits such as security, fraud protection, traceability, sustainability (e.g., plastic waste sorting), consumer engagement, and supply chain efficiency[82][88][89] - The Company holds over 1,100 U.S. and foreign patents in digital watermarking and related fields, with a strategic shift from direct patent monetization to encouraging large-scale adoption of its technologies[91][93] COVID-19 Pandemic Discusses significant risks from the COVID-19 pandemic, including potential disruptions to demand, customer relationships, and project delays - The COVID-19 pandemic poses significant risks, potentially disrupting consumer demand, customer/supplier relationships, sales processes, and general economic conditions[94] - Some projects with retail customers and partners may be delayed, impacting near-term revenue growth and the ability to fund the business[94] - To ensure liquidity during the pandemic, the Company applied for and received a loan under the U.S. government Paycheck Protection Program[94] Critical Accounting Policies and Estimates Refers to the Company's 2019 Annual Report on Form 10-K for detailed information on critical accounting policies and estimates - Detailed information on critical accounting policies and estimates is incorporated by reference from the Company's 2019 Annual Report on Form 10-K[95] Results of Operations Summary Provides a high-level overview of Q1 2020 financial performance, noting increases in total revenue and operating expenses - Total revenue for Q1 2020 increased by 9% to $6.2 million compared to Q1 2019, primarily driven by higher subscription revenue from Retail customers[98] - Total operating expenses for Q1 2020 increased by 7% to $13.0 million, mainly due to higher headcount and routine annual compensation adjustments[99] Revenue Analyzes revenue breakdown by type and geographic area, highlighting subscription revenue growth from Retail customers Revenue Breakdown (Three Months Ended March 31, 2020 vs. 2019) | Revenue Type (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :-------------------------- | :------------- | :------------- | :------------ | :------------- | | Service | $3,738 | $3,814 | $(76) | (2)% | | Subscription | $2,451 | $1,846 | $605 | 33% | | Total | $6,189 | $5,660 | $529 | 9% | - Subscription revenue growth was primarily attributed to increased software subscriptions to Retail customers[103] Revenue by Geography (Three Months Ended March 31, 2020 vs. 2019) | Geographic Area (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :----------------------------- | :------------- | :------------- | :------------ | :------------- | | Domestic | $1,759 | $1,317 | $442 | 34% | | International | $4,430 | $4,343 | $87 | 2% | | Total | $6,189 | $5,660 | $529 | 9% | Cost of Revenue Describes the components of cost of service revenue and cost of subscription revenue, including compensation, contractors, and amortization - Cost of service revenue includes compensation, benefits, stock-based compensation, outside contractors, equipment charges, depreciation, and travel costs related to software development services[106] - Cost of subscription revenue primarily consists of outside contractors for operational support, internet service provider charges, image search data fees, and amortization of capitalized patent costs[107] Gross Profit Examines gross profit trends, noting a 13% increase in total gross profit driven by subscription revenue growth Gross Profit Breakdown (Three Months Ended March 31, 2020 vs. 2019) | Gross Profit (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :-------------------------- | :------------- | :------------- | :------------ | :------------- | | Service | $2,054 | $2,169 | $(115) | (5)% | | Subscription | $1,937 | $1,357 | $580 | 43% | | Total | $3,991 | $3,526 | $465 | 13% | - Total gross profit increased by 13% to $3,991 thousand, driven by a 43% increase in subscription gross profit, while service gross profit decreased by 5%[108] - Subscription gross profit as a percentage of revenue increased from 74% to 79%, primarily due to higher subscription revenue[109] Operating Expenses Sales and marketing Reports on a 6% increase in sales and marketing expenses, primarily due to increased headcount and compensation adjustments Sales and Marketing Expenses (Three Months Ended March 31, 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :------------------------------ | :------------- | :------------- | :------------ | :------------- | | Sales and marketing expenses | $5,246 | $4,950 | $296 | 6% | - Sales and marketing expenses increased by 6% due to increased headcount and routine annual compensation adjustments[112] Research, development and engineering Reports on a 10% increase in research, development and engineering expenses, driven by higher headcount and compensation Research, Development and Engineering Expenses (Three Months Ended March 31, 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :------------------------------ | :------------- | :------------- | :------------ | :------------- | | R&D and engineering expenses | $4,433 | $4,038 | $395 | 10% | - Research, development and engineering expenses increased by 10% due to increased headcount and routine annual compensation adjustments[114] General and administrative Reports on a 5% increase in general and administrative expenses, primarily due to increased headcount and compensation adjustments General and Administrative Expenses (Three Months Ended March 31, 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :------------------------------ | :------------- | :------------- | :------------ | :------------- | | General and administrative expenses | $3,367 | $3,210 | $157 | 5% | - General and administrative expenses increased by 5% due to increased headcount and routine annual compensation adjustments[118] Stock-based compensation Details an 8% increase in total stock-based compensation expense and the remaining unrecognized compensation costs Stock-Based Compensation Expense by Function (Three Months Ended March 31, 2020 vs. 2019) | Functional Area | March 31, 2020 (in thousands) | March 31, 2019 (in thousands) | | :------------------------------ | :---------------------------- | :---------------------------- | | Cost of revenue | $190 | $182 | | Sales and marketing | $479 | $519 | | Research, development and engineering | $399 | $354 | | General and administrative | $1,127 | $982 | | Total | $2,195 | $2,037 | - Total stock-based compensation expense increased by 8% to $2,195 thousand, primarily due to more stock awards granted in the current year[119] - The Company anticipates incurring an additional $17,641 thousand in stock-based compensation expense through March 31, 2024[120] Other income, net Reports a 40% decrease in other income, net, primarily due to lower interest income from reduced rates and investment balances Other Income, Net (Three Months Ended March 31, 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :-------------------- | :------------- | :------------- | :------------ | :------------- | | Other income, net | $142 | $237 | $(95) | (40)% | - Other income, net, decreased by 40% due to lower interest income resulting from reduced interest rates and investment balances[122] Income Taxes Explains the 0% effective tax rate due to a full valuation allowance against deferred tax assets, which increased significantly - The effective tax rate remained 0% for both periods due to a full valuation allowance against deferred tax assets[123] - The valuation allowance increased by $2,336 thousand to $50,145 thousand as of March 31, 2020, primarily due to cumulative losses[123] Liquidity and Capital Resources Working Capital and Cash Position Analyzes working capital, current ratio, and total cash, cash equivalents, and marketable securities, noting a decrease in liquidity Liquidity Metrics (March 31, 2020 vs. December 31, 2019) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------------------------- | :------------- | :---------------- | | Working capital | $31,283 | $37,850 | | Current ratio | 6.8:1 | 8.0:1 | | Total cash, cash equivalents and marketable securities | $30,570 | $36,817 | - Cash, cash equivalents, and marketable securities decreased by $6,247 thousand, primarily due to cash used in operations, common stock purchases for tax withholding, and capital expenditures, partially offset by common stock issuance proceeds and stock option exercises[125] - The Company's investment policy limits credit exposure by diversifying investments across financial institutions and industry categories, with minimal credit risk[126][128] Operating Cash Flow Details changes in operating cash flow, noting an increase in cash used in operations and a significant increase in investing activities Operating Cash Flow Components (Three Months Ended March 31, 2020 vs. 2019) | Metric (in thousands) | March 31, 2020 | March 31, 2019 | Dollar Change | Percent Change | | :------------------------------------ | :------------- | :------------- | :------------ | :------------- | | Net loss | $(8,908) | $(8,463) | $(445) | (5)% | | Non-cash items | $2,770 | $2,574 | $196 | 8% | | Changes in operating assets and liabilities | $292 | $435 | $(143) | (33)% | | Net cash used in operating activities | $(5,846) | $(5,454) | $(392) | (7)% | - Net cash used in operating activities increased by $392 thousand, primarily due to a higher net loss, partially offset by higher non-cash items like stock-based compensation[129] - Net cash provided by investing activities increased by $2,074 thousand to $4,912 thousand, mainly due to higher net maturities of marketable securities[130] Future Cash Expectations Assesses the Company's ability to meet future cash requirements, considering current liquidity, available equity, and the impact of the COVID-19 pandemic - Current cash, cash equivalents, and short-term marketable securities are expected to cover working capital and capital expenditure requirements for at least the next 12 months[132] - As of March 31, 2020, $21.0 million of common stock had been sold under an Equity Distribution Agreement, with $49.2 million remaining available under a $100 million shelf registration statement[132] - The COVID-19 pandemic's impact on the stock market may hinder near-term financing through equity sales, but a recent PPP loan provides additional liquidity[134] COVID-19 Pandemic Addresses the Company's continuous review of liquidity due to COVID-19 uncertainty and the securing of a PPP loan for adequate liquidity - The Company is continuously reviewing its liquidity and capital requirements due to COVID-19 uncertainty[135] - A $5,032 thousand PPP loan was obtained to ensure adequate liquidity, with the intent to use the entire amount for payroll, rent, and utilities, potentially qualifying for forgiveness[135] Off-Balance Sheet Arrangements States the absence of material off-balance sheet arrangements and details the operating lease for the corporate office - The Company has no material off-balance sheet arrangements that would significantly affect its financial condition or results of operations[136] - An operating lease for the corporate office extends through March 2024, with remaining rent payments totaling $3.3 million[136] Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 Contains forward-looking statements subject to risks and uncertainties, including COVID-19 impacts, revenue concentration, and intellectual property protection - This section contains forward-looking statements subject to risks and uncertainties, which could cause actual results to differ materially from expectations[137] - Key factors that could affect future performance include the impact of the COVID-19 pandemic, revenue concentration, investment levels, market conditions, and intellectual property protection[137][139] - The Company does not undertake to publicly update or revise any forward-looking statements after the filing date of this report[140] Item 4. Controls and Procedures Details the evaluation of Digimarc's disclosure controls and procedures and reports on changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Reports on management's evaluation of disclosure controls and procedures, concluding their effectiveness as of March 31, 2020 - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2020[142] - Based on the evaluation, the CEO and CFO concluded that the disclosure controls and procedures were effective[143] Changes in Controls States that there were no material changes in internal control over financial reporting during Q1 2020 - There were no material changes in internal control over financial reporting during the three months ended March 31, 2020[144] PART II. OTHER INFORMATION Item 1. Legal Proceedings Addresses legal proceedings and claims, stating current matters are not expected to materially affect the Company's financial position - The Company is subject to ordinary course legal proceedings and claims, but does not believe their resolution will materially adversely affect its financial position, results of operations, or cash flows[147] Item 1A. Risk Factors Updates risk factors from the 2019 Annual Report, highlighting new risks related to the PPP loan and COVID-19 pandemic impacts Paycheck Protection Program Loan Discusses risks associated with the $5 million PPP loan, including potential government review, repayment requirements, and associated costs - The Company's $5 million PPP loan may be subject to government review, potentially diverting management's time and attention and incurring legal/reputational costs[149] - An adverse audit finding could require repayment of the loan, reducing liquidity, and potentially leading to fines and penalties[149] COVID-19 Pandemic Highlights significant, evolving risks from the COVID-19 pandemic, including impacts on operations, customer demand, and project delays - The COVID-19 pandemic presents significant, evolving risks, including impacts on employee health, operations, supplier/customer relationships, demand for services, and collectability of receivables[150] - Project delays with retail customers and partners due to the pandemic could affect near-term revenue growth and business funding[150] - The scope and duration of these impacts are uncertain, making Q1 2020 results not necessarily indicative of the full fiscal year[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the Company's repurchases of common stock to satisfy tax withholding liabilities related to restricted stock vesting - The Company repurchases common stock to cover required withholding tax liability upon the vesting of restricted shares[152] Purchases of Equity Securities (Three Months Ended March 31, 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | | :-------------------------- | :--------------------- | :--------------------------- | | January 1, 2020 - January 31, 2020 | 216 | $34.97 | | February 1, 2020 - February 29, 2020 | 20,072 | $34.05 | | March 1, 2020 - March 31, 2020 | 2,365 | $20.00 | | Total | 22,653 | $32.59 | Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including the PPP Promissory Note, CEO/CFO certifications, and XBRL-related documents - Exhibits include the Promissory Note for the PPP loan, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and various XBRL taxonomy documents[154] SIGNATURES This section contains the official signatures, certifying the filing of the Quarterly Report on Form 10-Q - The report was duly signed on April 30, 2020, by Charles Beck, Chief Financial Officer, as the duly authorized officer and Principal Financial and Accounting Officer[157]