dmrc-ex991

Beaverton, Ore. — February 21, 2019 — Digimarc Corporation (NASDAQ: DMRC), the inventor of the Intuitive Computing Platform (ICP™) featuring Digimarc Barcode, reported financial results for the fourth quarter and full year ended December 31, 2018.

Revenue for the fourth quarter of 2018 totaled $5.2 million compared to $4.9 million in the same quarter a year-ago. The increase in revenue was due to higher service, subscription and license revenue relative to the same quarter a year-ago.

Operating expenses for the fourth quarter of 2018 totaled $11.4 million compared to $11.5 million in the same quarter a year-ago. The decrease in operating expenses was due to lower general and administrative and research, development and engineering expenses, offset by higher investment in sales and marketing.

Operating loss for the fourth quarter of 2018 totaled $8.3 million compared to $8.7 million in the same quarter a year-ago. The lower operating loss was primarily due to higher revenue and lower operating expenses.

Net loss for the fourth quarter of 2018 totaled $8.0 million or $(0.70) per diluted share compared to a net loss of $8.4 million or $(0.76) per diluted share in the same quarter a year-ago.

At quarter-end, cash, cash equivalents and marketable securities totaled $43.7 million, compared to $49.4 million at September 30, 2018.

Revenue for the full year 2018 totaled $21.2 million compared to $25.2 million in 2017. The decrease in revenue was due to lower license revenue reflecting the impact of the $3.5 million upfront license fee realized in the third quarter of 2017 and $0.9 million of royalties realized in the first nine months of 2017 from the licensee. In exchange for the upfront license fee, the company waived any future royalty obligations from this licensee in one of the licensed fields of use. The decrease in license revenue was partially offset by an increase in subscription revenue reflecting growth in Digimarc Discover and Barcode revenue offset by lower Guardian revenue.

Operating expenses for the full year 2018 totaled $46.3 million compared to $43.2 million in 2017. The increase in operating expenses was primarily due to higher investment in sales and marketing as the company continues to address important opportunities in market development and delivery of Digimarc Discover and Digimarc Barcode.

Operating loss for the full year 2018 totaled $33.5 million compared to an operating loss of $26.6 million in 2017. The higher operating loss was primarily due to lower license revenue and higher operating expenses.

Net loss for the full year 2018 totaled $32.5 million or $(2.86) per diluted share, compared to a net loss of $25.8 million or $(2.44) per diluted share in 2017.

Digimarc will hold a conference call today (Thursday, February 21, 2019) to discuss these results, as well as provide an update on market conditions and execution of strategy. Chairman and CEO Bruce Davis and CFO Charles Beck will host the call starting at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). A question and answer session will follow management’s presentation.

The conference call will be broadcast live and available for replay in the investor section of the company's website. The conference call script will also be posted to the company’s website shortly before the call.

For those who wish to listen to the call via telephone, please dial the number below at least five minutes prior to the scheduled start time:

If you have any difficulty connecting with the conference call, please contact Liolios at 949-574-3860.

Digimarc Corporation (NASDAQ: DMRC) is a pioneer in the automatic identification of everyday objects such as product packaging and virtually any media, including print, images and audio. Based on the patented Intuitive Computing Platform (ICP™), Digimarc provides innovative and comprehensive automatic recognition technologies to simplify search, and transform information discovery through unparalleled reliability, efficiency and security. Digimarc has a global patent portfolio, which includes over 1,100 granted and pending patents. These innovations include state-of-the-art identification technology, Digimarc Barcode, as well as Digimarc Discover^® software for barcode scanning, image recognition, and more. Digimarc is based in Beaverton, Oregon, with technologies deployed by major retailers and consumer brands, global banks, U.S. states, film companies and professional sports franchises, among others. Visit digimarc.com and follow us @digimarc to learn more about The Barcode of Everything^®.

With the exception of historical information contained in this release, the matters described in this release contain various “forward-looking statements.” These forward-looking statements include statements and any related inferences regarding market opportunities for Digimarc Discover and Digimarc Barcode, and other statements identified by terminology such as “will,” “should,” “expects,” “estimates,” “predicts” and “continue” or other derivations of these or other comparable terms. These forward-looking statements are statements of management's opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied from the statements in this release as a result of changes in economic, business and/or regulatory factors. More detailed information about risk factors that may affect actual results are set forth in the company's Form 10-K for the year ended December 31, 2017 and in subsequent periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date of this release. Except as required by law, Digimarc undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this release.

	Three Month Information						Twelve Month Information
	December 31,			December 31,			December 31,			December 31,
	2018			2017			2018			2017
Revenue:
Service	$	3,144		$	3,001		$	12,774		$	12,936
Subscription		1,487			1,348			6,041			5,519
License		596			509			2,377			6,758
Total revenue		5,227			4,858			21,192			25,213

Cost of revenue:
Service		1,510			1,361			5,922			5,792
Subscription		437			563			1,907			2,264
License		154			133			597			502
Total cost of revenue		2,101			2,057			8,426			8,558

Gross profit:
Service		1,634			1,640			6,852			7,144
Subscription		1,050			785			4,134			3,255
License		442			376			1,780			6,256
Total gross profit		3,126			2,801			12,766			16,655

Gross margin:
Service		52	%		55	%		54	%		55	%
Subscription		71	%		58	%		68	%		59	%
License		74	%		74	%		75	%		93	%
Percentage of gross profit to total revenue		60	%		58	%		60	%		66	%

Operating expenses:
Sales and marketing		4,755			4,572			19,140			16,636
Research, development and engineering		3,897			3,932			15,971			15,435
General and administrative		2,402			2,614			9,897			9,680
Intellectual property		334			345			1,282			1,469
Total operating expenses		11,388			11,463			46,290			43,220

Operating loss		(8,262	)		(8,662	)		(33,524	)		(26,565	)

Other income, net		258			180			1,057			588

Loss before income taxes		(8,004	)		(8,482	)		(32,467	)		(25,977	)

Benefit (provision) for income taxes		(10	)		112			(39	)		206
Net loss	$	(8,014	)	$	(8,370	)	$	(32,506	)	$	(25,771	)

Earnings (loss) per common share:
Loss per common share - basic	$	(0.70	)	$	(0.76	)	$	(2.86	)	$	(2.44	)
Loss per common share - diluted	$	(0.70	)	$	(0.76	)	$	(2.86	)	$	(2.44	)
Weighted average common shares outstanding - basic		11,443			11,046			11,360			10,571
Weighted average common shares outstanding - diluted		11,443			11,046			11,360			10,571

	December 31,			December 31,
	2018			2017
Assets
Current assets:
Cash and cash equivalents ⁽¹⁾	$	27,278		$	40,823
Marketable securities ⁽¹⁾		16,378			26,915
Trade accounts receivable, net		3,888			6,404
Other current assets		2,100			2,171
Total current assets		49,644			76,313
Property and equipment, net		3,955			4,236
Intangibles, net		6,649			6,381
Goodwill		1,114			1,114
Other assets		425			326
Total assets	$	61,787		$	88,370

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities	$	1,092		$	1,914
Deferred revenue		3,226			3,124
Total current liabilities		4,318			5,038
Deferred rent and other long-term liabilities		854			985
Total liabilities		5,172			6,023

Commitments and contingencies

Shareholders' equity:
Preferred stock		50			50
Common stock		12			12
Additional paid-in capital		162,428			155,793
Accumulated deficit		(105,875	)		(73,508	)
Total shareholders' equity		56,615			82,347

Total liabilities and shareholders' equity	$	61,787		$	88,370


(1) Aggregate cash, cash equivalents and short-term marketable securities was $43,656 and $67,738 at December 31, 2018 and 2017, respectively.

	Twelve Month Information
	December 31,			December 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(32,506	)	$	(25,771	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and write-off of property and equipment		1,554			1,430
Amortization and write-off of intangibles		589			996
Stock-based compensation		7,298			6,757
Changes in operating assets and liabilities:
Trade accounts receivable		2,516			(1,326	)
Other current assets		92			(476	)
Other assets		(57	)		5
Accounts payable and other accrued liabilities		(878	)		585
Deferred revenue		182			189
Net cash used in operating activities		(21,210	)		(17,611	)

Cash flows from investing activities:
Purchase of property and equipment		(1,292	)		(2,188	)
Capitalized patent costs		(747	)		(819	)
Maturity of marketable securities		34,558			60,360
Purchase of marketable securities		(24,021	)		(38,387	)
Net cash provided by investing activities		8,498			18,966

Cash flows from financing activities:
Issuance of common stock, net of issuance costs		—			29,677
Exercise of stock options		1,256			1,183
Purchase of common stock		(2,089	)		(3,030	)
Net cash provided by (used in) financing activities		(833	)		27,830

Net increase (decrease) in cash and cash equivalents ⁽²⁾	$	(13,545	)	$	29,185


Cash, cash equivalents and marketable securities at beginning of period		67,738			60,526
Cash, cash equivalents and marketable securities at end of period		43,656			67,738
(2) Net increase (decrease) in cash, cash equivalents and marketable securities	$	(24,082	)	$	7,212