Digimarc Reports Fourth Quarter and Fiscal Year 2024 Financial Results

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Insights

Digimarc's Q4 and FY 2024 results highlight a company in strategic transition, pivoting toward authentication use cases while working to achieve profitability. The company has set ambitious financial targets: positive non-GAAP net income by Q4 2025 and meaningfully positive free cash flow in FY 2026.

While annual recurring revenue (ARR) decreased 10.3% to $20.0 million, this decline was primarily attributable to a single contract expiration in June 2024 that reduced ARR by $5.8 million. Excluding this loss, the company actually demonstrated underlying growth from new and existing commercial contracts. This mixed performance carried through to quarterly results, with Q4 revenue declining 6.5% to $8.7 million, while full-year revenue increased 10.0% to $38.4 million.

Cost discipline is becoming evident in Digimarc's operations. Q4 operating expenses decreased 14.3% to $14.4 million, driven by reductions in both cash compensation ($1.1 million) and stock compensation ($0.8 million). This helped narrow the quarterly net loss to $8.6 million ($0.40 per share) from $10.6 million ($0.52 per share) year-over-year.

The company's cash position improved slightly to $28.7 million, providing approximately 5-6 quarters of runway at current burn rates. This timing aligns with management's profitability targets, though execution will be critical.

The strategic focus on authentication represents a narrowing of Digimarc's market approach. While potentially limiting addressable market size in the near term, this concentration could improve sales efficiency and accelerate time to profitability. The growing contribution from HolyGrail 2.0 recycling projects (increasing service revenue by $0.6 million for the year) demonstrates traction in sustainable packaging applications, an emerging growth vector.

Digimarc's reorganization reflects pragmatic prioritization of near-term revenue opportunities over broader market development. The path to profitability appears plausible but requires continued execution on both revenue growth and cost control fronts.

Digimarc's strategic pivot toward authentication applications represents a significant refinement of their digital watermarking technology strategy. The company is narrowing its focus to capitalize on what appears to be the most immediate market opportunity: using imperceptible digital watermarks to authenticate physical goods and digital assets.

This authentication-first approach addresses a critical market need. Counterfeit products cost global brands $323 billion annually according to the International Chamber of Commerce, creating substantial demand for solutions that can reliably verify product authenticity. Digimarc's technology offers advantages over alternatives like QR codes or RFID tags - their watermarks are imperceptible, difficult to replicate, and don't alter product aesthetics.

The technology works by embedding microscopic patterns into product packaging, labels, or the products themselves. These patterns can be detected using standard image recognition technology but remain invisible to consumers. For brands fighting counterfeiting, this provides a powerful verification tool that doesn't compromise design aesthetics.

Their involvement in HolyGrail 2.0 (which generated $0.6 million in additional service revenue) demonstrates another promising application. This pan-European initiative uses digital watermarks to improve plastic packaging sorting and recycling - a use case that aligns with growing sustainability mandates in consumer packaged goods.

The reorganization likely means reallocating resources from broader market development toward authentication-specific engineering, sales, and implementation teams. While this narrows their immediate focus, it doesn't necessarily abandon other applications - rather, it prioritizes the use case with clearest near-term revenue potential.

The $5.8 million ARR reduction from a single expired contract suggests significant customer concentration risk. However, the partial offset from new contracts indicates the company is successfully acquiring new customers even as they navigate this transition.

The timeline to profitability (positive non-GAAP net income by Q4 2025 and positive free cash flow in FY 2026) appears ambitious but achievable if the authentication market develops as expected. With $28.7 million in cash and equivalents, the company has sufficient runway to execute this focused strategy before requiring additional capital.

02/26/2025 - 04:05 PM

Announces Path to Positive Free Cash Flow

BEAVERTON, Ore.--(BUSINESS WIRE)-- Digimarc Corporation (NASDAQ: DMRC) reported financial results for the fourth quarter and fiscal year ended December 31, 2024.

“Digital watermarks excel at the identification and authentication of physical goods and digital assets. Recent invention and market development have opened exciting near-term opportunities for us, concentrated around our authentication use cases. In response, we are prioritizing our authentication Go-To-Market efforts for the time being,” said Riley McCormack, Digimarc CEO. “To ensure we fully capitalize on the opportunities immediately in front of us, we have reorganized the company to reflect this near-term focus. We expect these efforts will allow us to achieve positive non-GAAP net income no later than the Fourth Quarter of 2025 and set us up to deliver meaningfully positive free cash flow in Fiscal Year 2026 and beyond.”

Fourth Quarter 2024 Financial Results

Annual recurring revenue (ARR)⁽¹⁾as of December 31, 2024 decreased to $20.0 million compared to $22.3 million as of December 31, 2023. The $2.3 million decrease primarily reflects a $5.8 million decrease in ARR due to the expiration of a commercial contract in June 2024, partially offset by an increase in ARR from new and existing commercial contracts.

Subscription revenue for the fourth quarter of 2024 decreased to $5.0 million compared to $5.6 million for the fourth quarter of 2023, primarily reflecting the expiration of a commercial contract in June 2024, partially offset by higher subscription revenue from new and existing commercial contracts.

Service revenue for the fourth quarter of 2024 decreased to $3.6 million compared to $3.7 million for the fourth quarter of 2023, primarily reflecting $0.4 million of lower government service revenue, partially offset by $0.3 million of higher service revenue from HolyGrail 2.0 recycling projects.

Total revenue for the fourth quarter of 2024 decreased to $8.7 million compared to $9.3 million for the fourth quarter of 2023.

Gross profit margin for the fourth quarter of 2024 decreased to 61% compared to 63% for the fourth quarter of 2023. Excluding amortization expense on acquired intangible assets, subscription gross profit margin for the fourth quarter of 2024 decreased to 85% from 87% for the fourth quarter of 2023, while service gross profit marginfor the fourth quarter of 2024 increased to 59% from 56% for the fourth quarter of 2023.

Non-GAAP gross profit margin for the fourth quarter of 2024 decreased to 77% compared to 79% for the fourth quarter of 2023.

Operating expenses for the fourth quarter of 2024 decreased to $14.4 million compared to $16.8 million for the fourth quarter of 2023, primarily reflecting lower cash compensation costs of $1.1 million and lower stock compensation costs of $0.8 million.

Non-GAAP operating expenses for the fourth quarter of 2024 decreased to $11.9 million compared to $13.4 million for the fourth quarter of 2023.

Net loss for the fourth quarter of 2024 was $8.6 million or ($0.40) per share compared to $10.6 million or ($0.52) per share for the fourth quarter of 2023.

Non-GAAP net loss for the fourth quarter of 2024 was $4.7 million or ($0.22) per share compared to $5.6 million or ($0.28) per share for the fourth quarter of 2023.

Fiscal Year 2024 Financial Results

Subscription revenue for fiscal year 2024 increased to $22.4 million compared to $19.0 million for fiscal year 2023, primarily reflecting higher subscription revenue from new and existing commercial contracts, partially offset by the expiration of a commercial contract in June 2024.

Service revenue for fiscal year 2024 increased to $16.0 million compared to $15.9 million for fiscal year 2023, primarily reflecting $0.6 million of higher service revenue from HolyGrail 2.0 recycling projects, partially offset by $0.4 million of lower other commercial service revenue and $0.2 million of lower government service revenue.

Total revenue for fiscal year 2024 increased to $38.4 million compared to $34.9 million for fiscal year 2023.

Gross profit margin for fiscal year 2024 increased to 63% compared to 58% for fiscal year 2023. Excluding amortization expense on acquired intangible assets, subscription gross profit margin for fiscal year 2024 increased to 87% from 84% for fiscal year 2023, while service gross profit marginfor fiscal year 2024 increased to 59% from 54% for fiscal year 2023.

Non-GAAP gross profit margin for the fiscal year 2024 increased to 78% compared to 76% for fiscal year 2023.

Operating expenses for fiscal year 2024 decreased to $65.5 million compared to $68.4 million for fiscal year 2023, primarily reflecting lower cash compensation costs of $1.5 million, lower stock compensation costs of $0.7 million, lower depreciation and amortization costs of $0.5 million, and lower lease impairment costs of $0.3 million, partially offset by $0.5 million of higher professional services and consulting costs.

Non-GAAP operating expenses for fiscal year 2024 decreased to $53.8 million compared to $55.0 million for fiscal year 2023.

Net loss for fiscal year 2024 was $39.0 million or ($1.83) per share compared to a net loss of $46.0 million or ($2.26) per share for fiscal year 2023.

Non-GAAP net loss for fiscal year 2024 was $21.4 million or ($1.01) per share compared to a net loss of $26.4 million or ($1.30) per share for fiscal year 2023.

At December 31, 2024, cash, cash equivalents, and marketable securities totaled $28.7 million compared to $27.2 million at December 31, 2023.

______________
(1) Annual Recurring Revenue (ARR) is a company performance metric calculated as the aggregation of annualized subscription fees from all of our commercial contracts as of the measurement date.

Conference Call

Digimarc will hold a conference call today (Wednesday, February 26, 2025) to discuss these financial results and to provide a business update. CEO Riley McCormack, CFO Charles Beck and CLO George Karamanos 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 prepared remarks.

The conference call will be broadcast live and available for replay here and 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 call in via telephone to ask a question, please dial the number below at least five minutes before the scheduled start time:

Toll-Free number: 877-407-0832
International number: 201-689-8433
Conference ID number: 13748469

About Digimarc

Digimarc Corporation (NASDAQ: DMRC) is the pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed at a massive scale for the identification and the authentication of physical and digital items. A notable example is our partnership with a consortium of the world’s central banks to deter counterfeiting of global currency. Digimarc is also instrumental in supporting global industry standards efforts spanning both the physical and digital worlds. In 2023, Digimarc was named to the Fortune 2023 Change the World list and honored as a 2023 Fast Company World Changing Ideas finalist. Learn more at Digimarc.com.

Forward-Looking Statements

Except for historical information contained in this release, the matters described in this release contain various “forward-looking statements.” These forward-looking statements include statements identified by terminology such as “will,” “should,” “expects,” “estimates,” “predicts” and “continue” or other derivations of these or other comparable terms, and include, among others, statements regarding the impact of business restructuring and cost control initiatives and the estimated amounts and timing of anticipated cost reductions. 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 regulatory factors, including, without limitation, the terms and timing of anticipated contract renewals. More detailed information about risk factors that may affect actual results are outlined in the company’s Form 10-K for the year ended December 31, 2023, 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.

Non-GAAP Financial Measures

This release contains the following non-GAAP financial measures: Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, Non-GAAP loss per share (diluted), and free cash flow. See below for a reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure. These non-GAAP financial measures are an important measure of our operating performance because they allow management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing non-cash and non-recurring activities that affect comparability. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons.

Digimarc believes that providing these non-GAAP financial measures, together with the reconciliation to GAAP, helps management and investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules. These non-GAAP financial measures are not measurements of financial performance or liquidity under GAAP. In order to facilitate a clear understanding of its consolidated historical operating results, investors should examine Digimarc’s non-GAAP financial measures in conjunction with its historical GAAP financial information, and investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, GAAP financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results.


Digimarc Corporation Consolidated Income Statement Information (in thousands, except per share amounts) (Unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
		2024			2023			2024			2023
Revenue:
Subscription	$	5,024		$	5,599		$	22,418		$	18,973
Service		3,634			3,685			16,000			15,878
Total revenue		8,658			9,284			38,418			34,851
Cost of revenue:
Subscription ⁽¹⁾		754			711			2,959			2,975
Service ⁽¹⁾		1,490			1,631			6,628			7,252
Amortization expense on acquired intangible assets		1,147			1,113			4,592			4,459
Total cost of revenue		3,391			3,455			14,179			14,686
Gross profit
Subscription ⁽¹⁾		4,270			4,888			19,459			15,998
Service ⁽¹⁾		2,144			2,054			9,372			8,626
Amortization expense on acquired intangible assets		(1,147	)		(1,113	)		(4,592	)		(4,459	)
Total gross profit		5,267			5,829			24,239			20,165
Gross profit margin:
Subscription ⁽¹⁾		85	%		87	%		87	%		84	%
Service ⁽¹⁾		59	%		56	%		59	%		54	%
Total		61	%		63	%		63	%		58	%

Operating expenses:
Sales and marketing		4,378			5,639			21,167			22,409
Research, development and engineering		6,336			6,282			26,209			26,577
General and administrative		3,378			4,659			17,073			18,071
Amortization expense on acquired intangible assets		274			265			1,097			1,065
Impairment of lease right of use assets and leasehold improvements		—			—			—			250
Total operating expenses		14,366			16,845			65,546			68,372

Operating loss		(9,099	)		(11,016	)		(41,307	)		(48,207	)
Other income, net		473			582			2,341			2,452
Loss before income taxes		(8,626	)		(10,434	)		(38,966	)		(45,755	)
Provision for income taxes		(22	)		(139	)		(44	)		(204	)
Net loss	$	(8,648	)	$	(10,573	)	$	(39,010	)	$	(45,959	)

Loss per share:
Loss per share — basic	$	(0.40	)	$	(0.52	)	$	(1.83	)	$	(2.26	)
Loss per share — diluted	$	(0.40	)	$	(0.52	)	$	(1.83	)	$	(2.26	)
Weighted average shares outstanding — basic		21,480			20,369			21,261			20,322
Weighted average shares outstanding — diluted		21,480			20,369			21,261			20,322
_______________ ⁽¹⁾ Cost of revenue, Gross profit and Gross profit margin for Subscription and Service excludes amortization expense on acquired intangible assets.

Digimarc Corporation Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands, except per share amounts) (Unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
		2024			2023			2024			2023
GAAP gross profit	$	5,267		$	5,829		$	24,239		$	20,165
Amortization of acquired intangible assets		1,147			1,113			4,592			4,459
Amortization and write-off of other intangible assets		134			140			544			573
Stock-based compensation		143			260			706			1,126
Non-GAAP gross profit	$	6,691		$	7,342		$	30,081		$	26,323
Non-GAAP gross profit margin		77	%		79	%		78	%		76	%

GAAP operating expenses	$	14,366		$	16,845		$	65,546		$	68,372
Depreciation and write-off of property and equipment		(158	)		(210	)		(728	)		(1,121	)
Amortization of acquired intangible assets		(274	)		(265	)		(1,097	)		(1,065	)
Amortization and write-off of other intangible assets		(35	)		(117	)		(276	)		(393	)
Amortization of lease right of use assets under operating leases		(95	)		(91	)		(358	)		(517	)
Stock-based compensation		(1,947	)		(2,752	)		(9,323	)		(10,032	)
Impairment of lease right of use assets and leasehold improvements		—			—			—			(250	)
Non-GAAP operating expenses	$	11,857		$	13,410		$	53,764		$	54,994

GAAP net loss	$	(8,648	)	$	(10,573	)	$	(39,010	)	$	(45,959	)
Total adjustments to gross profit		1,424			1,513			5,842			6,158
Total adjustments to operating expenses		2,509			3,435			11,782			13,378
Non-GAAP net loss	$	(4,715	)	$	(5,625	)	$	(21,386	)	$	(26,423	)

GAAP loss per share (diluted)	$	(0.40	)	$	(0.52	)	$	(1.83	)	$	(2.26	)
Non-GAAP net loss	$	(4,715	)	$	(5,625	)	$	(21,386	)	$	(26,423	)
Non-GAAP loss per share (diluted)	$	(0.22	)	$	(0.28	)	$	(1.01	)	$	(1.30	)

Free cash flow
Cash flows from operating activities	$	(4,235	)	$	(5,316	)	$	(26,572	)	$	(21,995	)
Purchase of property and equipment		(13	)		(106	)		(212	)		(314	)
Capitalized patent costs		(118	)		(131	)		(431	)		(426	)
Free cash flow	$	(4,366	)	$	(5,553	)	$	(27,215	)	$	(22,735	)

Digimarc Corporation Consolidated Balance Sheet Information (in thousands) (Unaudited)

	December 31,			December 31,
		2024			2023
ASSETS
Current assets:
Cash and cash equivalents ⁽¹⁾	$	12,365		$	21,456
Marketable securities ⁽¹⁾		16,365			5,726
Trade accounts receivable, net		6,412			5,813
Other current assets		4,189			4,085
Total current assets		39,331			37,080
Property and equipment, net		1,040			1,570
Intangibles, net		22,191			28,458
Goodwill		8,532			8,641
Lease right of use assets		3,659			4,017
Other assets		1,013			786
Total assets	$	75,766		$	80,552

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	5,118		$	6,672
Deferred revenue		4,020			5,853
Total current liabilities		9,138			12,525
Long-term lease liabilities		5,213			5,994
Other long-term liabilities		56			106
Total liabilities		14,407			18,625

Shareholders’ equity:
Preferred stock		50			50
Common stock		21			20
Additional paid-in capital		415,049			376,189
Accumulated deficit		(350,778	)		(311,768	)
Accumulated other comprehensive loss		(2,983	)		(2,564	)
Total shareholders’ equity		61,359			61,927
Total liabilities and shareholders’ equity	$	75,766		$	80,552
_______________ ⁽¹⁾ Aggregate cash, cash equivalents, and marketable securities was $28.7 million and $27.2 million at December 31, 2024 and 2023, respectively.

Digimarc Corporation Consolidated Cash Flow Information (in thousands) (Unaudited)

	Year Ended
	December 31,
		2024			2023
Cash flows from operating activities:
Net loss	$	(39,010	)	$	(45,959	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and write-off of property and equipment		728			1,121
Amortization of acquired intangible assets		5,689			5,524
Amortization and write-off of other intangible assets		820			966
Amortization of lease right of use assets under operating leases		358			517
Stock-based compensation		10,029			11,158
Impairment of lease right of use assets and leasehold improvements		—			250
Increase (decrease) in allowance for doubtful accounts		17			20
Changes in operating assets and liabilities:
Trade accounts receivable		(687	)		(335	)
Other current assets		(128	)		2,200
Other assets		(156	)		299
Accounts payable and other accrued liabilities		(1,608	)		660
Deferred revenue		(1,838	)		1,627
Lease liability and other long-term liabilities		(786	)		(43	)
Net cash provided by (used in) operating activities		(26,572	)		(21,995	)

Cash flows from investing activities:
Purchase of property and equipment		(212	)		(314	)
Capitalized patent costs		(431	)		(426	)
Proceeds from maturities of marketable securities		22,555			27,664
Purchases of marketable securities		(33,194	)		(14,363	)
Net cash provided by (used in) investing activities		(11,282	)		12,561

Cash flows from financing activities:
Issuance of common stock, net of issuance costs		32,218			—
Purchase of common stock		(3,416	)		(2,724	)
Repayment of loans		(37	)		(36	)
Net cash provided by (used in) financing activities		28,765			(2,760	)
Effect of exchange rate on cash		(2	)		52
Net increase (decrease) in cash and cash equivalents	$	(9,091	)	$	(12,142	)


Cash, cash equivalents and marketable securities at beginning of period		27,182			52,542
Cash, cash equivalents and marketable securities at end of period		28,730			27,182
Net increase (decrease) in cash, cash equivalents and marketable securities	$	1,548		$	(25,360	)

View source version on businesswire.com: https://www.businesswire.com/news/home/20250226021359/en/

Company Contact:

Charles Beck

Chief Financial Officer

Charles.Beck@digimarc.com

+1 503-469-4721

Source: Digimarc Corporation

FAQ

When does Digimarc (DMRC) expect to achieve positive non-GAAP net income?

Digimarc expects to achieve positive non-GAAP net income no later than the Fourth Quarter of 2025.

What caused the decline in Digimarc's (DMRC) Q4 2024 revenue?

The decline was primarily due to the expiration of a commercial contract in June 2024, which led to a $5.8M decrease in ARR.

How much did Digimarc's (DMRC) annual revenue grow in fiscal year 2024?

Digimarc's total revenue increased to $38.4M in FY 2024 from $34.9M in FY 2023, representing a 10% growth.

What is Digimarc's (DMRC) cash position as of December 31, 2024?

Digimarc had $28.7M in cash, cash equivalents, and marketable securities as of December 31, 2024.

How much did Digimarc (DMRC) reduce its operating expenses in Q4 2024?

Operating expenses decreased to $14.4M from $16.8M YoY, primarily due to $1.1M lower cash compensation and $0.8M lower stock compensation costs.

Digimarc Reports Fourth Quarter and Fiscal Year 2024 Financial Results

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FAQ

When does Digimarc (DMRC) expect to achieve positive non-GAAP net income?

What caused the decline in Digimarc's (DMRC) Q4 2024 revenue?

How much did Digimarc's (DMRC) annual revenue grow in fiscal year 2024?

What is Digimarc's (DMRC) cash position as of December 31, 2024?

How much did Digimarc (DMRC) reduce its operating expenses in Q4 2024?

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Digimarc Reports Fourth Quarter and Fiscal Year 2024 Financial Results

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When does Digimarc (DMRC) expect to achieve positive non-GAAP net income?

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What is Digimarc's (DMRC) cash position as of December 31, 2024?

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