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]

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]

Financial Data and Key Metrics Changes - Ending Annual Recurring Revenue (ARR) for Q1 was $20 million compared to $23.9 million for Q1 last year, representing a year-on-year decline [16] - Total revenue was $9.4 million, a decrease of $600,000 or 6% from $9.9 million in Q1 last year [18] - Subscription revenue accounted for 57% of total revenue for the quarter, decreasing 8% from $5.8 million to $5.3 million [18] - Free cash flow usage decreased from $8.6 million in Q1 last year to $5.6 million in Q1 this year [22] Business Line Data and Key Metrics Changes - Subscription revenue would have increased by $600,000 or 13% excluding the impact of an expired commercial contract [18] - Service revenue decreased 3% from $4.2 million to $4.1 million, reflecting lower government service revenue [18] - Subscription gross profit margin was 86% for the quarter, down one percentage point from Q1 last year [20] Market Data and Key Metrics Changes - The company expects the first gift cards protected with their solution to appear on shelves within the next month, indicating a significant market opportunity [9] - The company is beginning to work with partners to explore opportunities in multiple large geographies beyond the US market for their gift card solution [10] Company Strategy and Development Direction - The company has narrowed its focus to three specific opportunity sets: retail loss prevention, physical authentication, and digital authentication [5] - The company aims to achieve sustainable free cash flow generation for the first time in over twelve years and expects significant top-line growth in 2026 and beyond [8] - The company is strategically price aggressive on renewals outside its current focus areas to maintain market presence [16][35] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for revenue growth from the gift card opportunities, emphasizing the importance of catalyzing adoption this year [31] - The company anticipates higher cash flow usage in Q2 due to increased legal and public relations costs but expects normalized cash flow usage to decrease thereafter [23] - Management highlighted the importance of executing well in Belgium to prove the value of their technology and drive adoption [43] Other Important Information - The company has formed a partnership with a supplier to enhance its loyalty and reward offerings [12] - The company was selected by Unilever as their digital link vendor of choice, indicating a strong market position [14] Q&A Session Summary Question: What is the potential for revenue and ARR from the gift card opportunities? - Management expects gift cards to be a significant driver of 2025 ARR growth and is focused on catalyzing adoption this year [31][32] Question: Are price-sensitive renewals impacting ARR growth? - Management indicated that while there is some impact from price-sensitive renewals, it is not material enough to break down ARR in detail [35][36] Question: Can you provide initial proof points regarding the deal in Belgium? - Management noted that it has only been a couple of months since the signing, but there is potential upside as the initiative progresses [39] Question: How should investors think about ARR trajectory by year-end? - Management reiterated the goal of achieving non-GAAP profitability by Q4 and highlighted the gift card initiative as a significant driver for ARR [48][49]

Financial Data and Key Metrics Changes - Ending Annual Recurring Revenue (ARR) for Q1 was $20 million compared to $23.9 million for Q1 last year, representing a year-on-year decline of 16% [15] - Total revenue was $9.4 million, a decrease of $600,000 or 6% from $9.9 million in Q1 last year [16] - Subscription revenue accounted for 57% of total revenue for the quarter, decreasing 8% from $5.8 million to $5.3 million [16] - Free cash flow usage decreased from $8.6 million in Q1 last year to $5.6 million in Q1 this year [20] Business Line Data and Key Metrics Changes - Subscription revenue would have increased by $600,000 or 13% if excluding the impact of an expired commercial contract [16] - Service revenue decreased 3% from $4.2 million to $4.1 million, reflecting lower government service revenue [16] - Subscription gross profit margin was 86% for the quarter, down one percentage point from Q1 last year [18] Market Data and Key Metrics Changes - The company expects to see higher cash flow usage in Q2 due to increased legal and public relations costs [21] - Government service revenue was down 17%, reflecting a lower annual program budget [17] Company Strategy and Development Direction - The company has narrowed its focus to three specific opportunity sets: retail loss prevention, physical authentication, and digital authentication [4] - The company aims to achieve sustainable free cash flow generation for the first time in over twelve years and expects significant top-line growth in 2026 and beyond [7] - The company is positioned to benefit from historical work outside its current focus areas while tightening its go-to-market strategy [7] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for revenue growth from gift card solutions, expecting it to be a significant driver of 2025 ARR [28] - The company is focused on optimizing long-term decisions rather than short-term gains, particularly in digital authentication [12] - Management highlighted the importance of executing well in Belgium to prove the value of their technology and drive adoption [40] Other Important Information - The company has formed partnerships with major clients, including Unilever, to enhance its digital link offerings [13] - The company anticipates that subscription gross margins may be lower in the next couple of quarters due to ongoing consolidation of legacy platforms [18] Q&A Session Summary Question: What is the potential for revenue and ARR from gift card opportunities in 2025? - Management expects gift cards to be a significant driver of 2025 ARR growth and is focused on catalyzing adoption this year [28] Question: Are price-sensitive renewals impacting ARR growth in Q1 and Q2? - Management indicated that while there is some impact from price-sensitive renewals, it is not material enough to call out specifically [32] Question: Can you provide initial proof points regarding the deal in Belgium? - Management noted that the initiative is still in early stages, but there is potential upside as it moves forward [36] Question: How should investors think about ARR trajectory by year-end? - Management reiterated the goal of achieving non-GAAP profitability by Q4 and highlighted gift cards as a significant driver for ARR [45] Question: What is the total addressable market (TAM) for gift cards? - Management estimates the U.S. market for gift cards to be between $900 million and $1.5 billion, with growth vectors including pricing strategies and new features [47]