Digimarc(US:DMRC)2025-05-06 20:22Revenue Performance - Total revenue for the three-month period ended March 31, 2025, decreased by $0.6 million to $9.4 million compared to $9.9 million for the same period in 2024, reflecting a 6% decline [111]. - Subscription revenue decreased by $0.4 million, primarily due to the expiration of a commercial contract in June 2024, which accounted for $1.1 million, partially offset by higher revenue from new and existing contracts [111][118]. - Service revenue decreased by $0.1 million, mainly due to lower government service revenue from Central Banks, offset by higher commercial service revenue related to HolyGrail 2.0 recycling projects [111][120]. - Domestic revenue decreased by $0.7 million to $2.1 million, primarily due to lower subscription revenue from the expiration of a commercial contract [121][122]. - International revenue increased by $0.2 million to $7.2 million, driven by higher commercial service and subscription revenue from HolyGrail 2.0 projects and international customers [121][123]. - Total revenue for the three months ended March 31, 2025, was $9,368 million, a decrease of $570 million or 6% compared to $9,938 million in the same period of 2024 [124]. - Commercial revenue increased by $91 million or 2% to $5,810 million, driven by a $539 million increase in service revenue, while subscription revenue decreased by $448 million or 8% [124][125]. - Government revenue decreased by $661 million or 16% to $3,558 million, primarily due to a $661 million decline in service revenue attributed to a smaller approved budget for program work in 2025 [124][126]. - Annual Recurring Revenue (ARR) decreased by $3,932 million or 16% to $19,973 million, reflecting a $5,800 million decrease from the expiration of a commercial contract [127]. Operating Expenses - Total operating expenses increased by $1.1 million to $18.2 million for the three-month period ended March 31, 2025, primarily due to $3.2 million in higher cash severance costs from a reorganization [114]. - Sales and marketing expenses decreased by $458 million or 8% to $5,078 million, representing 54% of total revenue [134]. - Research, development, and engineering expenses increased by $893 million or 13% to $7,634 million, accounting for 81% of total revenue [134]. - General and administrative expenses increased by $661 million or 15% to $5,181 million, representing 55% of total revenue [137]. - Non-GAAP operating expenses increased by $2.7 million to $16.467 million for the three months ended March 31, 2025, primarily due to higher severance and professional services costs [154]. Profitability Metrics - The gross profit margin improved to 65% in Q1 2025 from 63% in Q1 2024, despite a decrease in total revenue [110]. - Gross profit for the three months ended March 31, 2025, was $6,085 million, a decrease of $127 million or 2% compared to $6,212 million in 2024 [129][130]. - Subscription gross profit margin decreased to 86% from 87%, while service gross profit margin increased to 65% from 56% [129][131][132]. - Non-GAAP gross profit for the three months ended March 31, 2025, decreased by $0.3 million to $7.488 million compared to $7.743 million for the same period in 2024 [152]. - Non-GAAP gross profit margin increased to 80% for the three months ended March 31, 2025, compared to 78% for the same period in 2024 [153]. Cash Flow and Financial Position - Cash, cash equivalents, and short-term marketable securities decreased by $7.2 million to $21.567 million as of March 31, 2025, from $28.730 million as of December 31, 2024 [155]. - Net cash used in operating activities decreased by $2.9 million to $5.486 million for the three months ended March 31, 2025, compared to $8.422 million for the same period in 2024 [159]. - The company raised $32.5 million in gross cash proceeds from a registered direct stock offering in February 2024 [166]. - As of March 31, 2025, $67.5 million remained available under the new shelf registration statement filed on June 23, 2023 [167]. - Future cash expectations indicate that current balances will satisfy projected working capital and capital expenditure requirements for at least the next 12 months [163]. Future Outlook - The company expects subscription revenue in fiscal 2025 to be negatively impacted by the termination of a contract that contributed $3.3 million in 2024, with an expected contribution of $1.1 million in 2025 [112][113]. - The company anticipates government service revenue in fiscal 2025 to be $1.7 million to $2.0 million lower than in fiscal 2024 due to a smaller approved budget [113]. - Projected annualized cash expense reductions of approximately $16.5 million due to a recent reorganization [165]. - The company anticipates expense reductions resulting from a recent reorganization [170]. - The company expects to see impacts from accounting pronouncements that have been issued but not yet adopted [170]. Strategic Initiatives - The company has identified approximately $5.5 million in annualized cash cost savings as part of its reorganization efforts [115]. - The company believes it has one of the world's most extensive patent portfolios in digital watermarking and related fields [170].