Digimarc(DMRC) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Financial Results Executive Summary 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] - 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] - Non-GAAP net loss significantly decreased to $2.3 million ($0.11 per share) in Q2 2025 from $4.9 million ($0.23 per share) in Q2 2024[8] CEO Commentary The CEO highlighted Digimarc's strategic focus on delivering verifiable trust and authenticity in an AI-accelerated world - Digimarc is focused on filling the vacuum of trust and authenticity created by the relentless acceleration of AI models and agents[2] - The company's mission is to deliver a future where humans and intelligent systems can verify what's real, protect what matters, and move forward with confidence, by making trust verifiable and authenticity scalable[2] - Significant progress was made in Q2 towards building the trust layer for the modern world[2] Key Financial Highlights Q2 2025 saw declining revenue and ARR due to contract expirations, but improved net loss and free cash flow from expense management Revenue Performance Revenue by Type | Revenue Type | Q2 2025 ($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] - Service revenue decrease primarily reflects $0.5 million of lower government service revenue from the Central Banks[4] Profitability Key Profitability Metrics | Metric | Q2 2025 | Q2 2024 | Change (pp) | | :-------------------------------------------- | :------ | :------ | :---------- | | GAAP Gross Profit Margin | 59% | 66% | -7 | | Non-GAAP Gross Profit Margin | 80% | 81% | -1 | | Subscription Gross Profit Margin (excl. amortization) | 85% | 89% | -4 | | Service Gross Profit Margin (excl. amortization) | 59% | 58% | +1 | Operating Expenses Operating Expenses Overview | Metric | Q2 2025 ($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 $1.3 million of higher stock compensation costs[7] Net Loss and EPS Net Loss and EPS Summary | Metric | Q2 2025 ($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 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 $0.9 million in previously accrued severance costs paid[9] Annual Recurring Revenue (ARR) ARR Performance | Metric | As of June 30, 2025 ($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 $9.3 million of ARR, partially offset by increases from new and existing commercial contracts[5] - Annual Recurring Revenue (ARR) is defined as the aggregation of annualized subscription fees from all commercial contracts as of the measurement date[10] Detailed Financial Statements Consolidated Statements of Operations The company reported lower revenues but reduced its net loss for Q2 and YTD 2025 through significant operating expense reductions Revenue Breakdown Revenue by Type | Revenue Type | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :----------- | :----------- | :----------- | :------------ | :------------ | | Subscription | 4,624 | 6,380 | 9,938 | 12,142 | | Service | 3,386 | 3,999 | 7,440 | 8,175 | | Total Revenue| 8,010 | 10,379 | 17,378 | 20,317 | Cost of Revenue and Gross Profit Gross Profit Analysis | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | Total Cost of Revenue | 3,303 | 3,516 | 6,586 | 7,242 | | Total Gross Profit | 4,707 | 6,863 | 10,792 | 13,075 | | Total Gross Profit Margin | 59% | 66% | 62% | 64% | | Subscription Gross Profit Margin (excl. amortization) | 85% | 89% | 85% | 88% | | Service Gross Profit Margin (excl. amortization) | 59% | 58% | 63% | 57% | Operating Expenses (GAAP) GAAP Operating Expenses | Expense Type | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------- | :----------- | :----------- | :------------ | :------------ | | Sales and marketing | 3,231 | 5,616 | 8,309 | 11,152 | | Research, development and engineering | 4,536 | 6,644 | 12,170 | 13,385 | | General and administrative | 5,078 | 4,314 | 10,259 | 8,834 | | Amortization expense on acquired intangible assets | 288 | 271 | 559 | 543 | | Total Operating Expenses | 13,133 | 16,845 | 31,297 | 33,914 | Net Loss and Per Share Amounts (GAAP) GAAP Net Loss and EPS | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | Net Loss | (8,220) | (9,270) | (19,950) | (19,608) | | Loss per share — basic | (0.38) | (0.43) | (0.93) | (0.93) | | Loss per share — diluted | (0.38) | (0.43) | (0.93) | (0.93) | | Weighted average shares outstanding — basic | 21,608 | 21,392 | 21,565 | 21,061 | Reconciliation of GAAP to Non-GAAP Financial Measures This section details adjustments for non-cash items to reconcile GAAP results with non-GAAP measures for clearer core performance evaluation Non-GAAP Gross Profit Reconciliation of GAAP to Non-GAAP Gross Profit | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | GAAP gross profit | 4,707 | 6,863 | 10,792 | 13,075 | | Amortization of acquired intangible assets | 1,205 | 1,132 | 2,337 | 2,272 | | Amortization and write-off of other intangible assets | 219 | 209 | 438 | 421 | | Stock-based compensation | 253 | 156 | 390 | 409 | | Non-GAAP gross profit | 6,384 | 8,360 | 13,957 | 16,177 | | Non-GAAP gross profit margin | 80% | 81% | 80% | 80% | - In Q2 2025, management updated its definition of Non-GAAP gross profit to adjust for the amortization of patent maintenance costs, now reflected in 'amortization and write-off of other intangible assets'[21] Non-GAAP Operating Expenses Reconciliation of GAAP to Non-GAAP Operating Expenses | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | GAAP operating expenses | 13,133 | 16,845 | 31,297 | 33,914 | | Depreciation and write-off of property and equipment | (138) | (198) | (284) | (391) | | Amortization of acquired intangible assets | (288) | (271) | (559) | (543) | | Amortization and write-off of other intangible assets | (227) | (31) | (201) | (164) | | Amortization of lease right of use assets under operating leases | (103) | (86) | (201) | (173) | | Stock-based compensation | (3,518) | (2,250) | (4,641) | (4,828) | | Non-GAAP operating expenses | 8,859 | 14,009 | 25,411 | 27,815 | Non-GAAP Net Loss and EPS Reconciliation of GAAP to Non-GAAP Net Loss and EPS | Metric | Q2 2025 ($K) | Q2 2024 ($K) | YTD 2025 ($K) | YTD 2024 ($K) | | :-------------------------------------- | :----------- | :----------- | :------------ | :------------ | | GAAP net loss | (8,220) | (9,270) | (19,950) | (19,608) | | Total adjustments to gross profit | 1,677 | 1,497 | 3,165 | 3,102 | | Total adjustments to operating expenses | 4,274 | 2,836 | 5,886 | 6,099 | | Non-GAAP net loss | (2,269) | (4,937) | (10,899) | (10,407) | | GAAP loss per share (diluted) | (0.38) | (0.43) | (0.93) | (0.93) | | Non-GAAP loss per share (diluted) | (0.11) | (0.23) | (0.51) | (0.49) | Free Cash Flow Reconciliation to Free Cash Flow | Metric | Q2 2025 ($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 Total assets decreased to $60.7 million as of June 30, 2025, driven by a reduction in cash and marketable securities Assets Key Asset Accounts | Asset Type | June 30, 2025 ($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 $16.1 million at June 30, 2025[23] Liabilities and Shareholders' Equity Key Liability and Equity Accounts | Category | June 30, 2025 ($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 For YTD 2025, the company saw improved operating cash flow and a significant inflow from investing activities Operating Activities 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 $5.1 million year-over-year for the six months ended June 30, 2025, indicating improved operational cash management[25] Investing Activities Cash Flow from Investing | Metric | YTD 2025 ($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 $5.5 million in YTD 2024, primarily due to higher proceeds from marketable securities maturities and lower purchases[25] Financing Activities Cash Flow from Financing | Metric | YTD 2025 ($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] Company Information and Disclosures Conference Call Details 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] - The call was hosted by CEO Riley McCormack, CFO Charles Beck, and CLO George Karamanos[11] - The conference call and investor presentation were broadcast live and made available for replay on the company's website[12] About Digimarc 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] - 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] - 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] Forward-Looking Statements 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] - 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] - 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] Non-GAAP Financial Measures Disclosure 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] - Management uses these non-GAAP financial measures in evaluating financial and operational decision-making and for period-to-period comparisons[16] - 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]