Ocho Publishes Letter to the Shareholders of Digimarc Corporation

Rhea-AI Summary

Ocho Investments , owning 5.2% of Digimarc (DMRC), has published a letter urging shareholders to vote 'WITHHOLD' on CEO Riley McCormack and Chair Kathleen Kool, and 'VOTE NO' on say-on-pay at the upcoming Annual Meeting on May 7, 2025.

The investor's concerns include:

• CEO McCormack's four-year tenure showing 60% stock price decline, stagnant revenue per share, declining net ARR, and continued losses
• Controversial change in compensation metrics from total ARR to 'Gross New ARR Growth,' resulting in executives receiving 96% payout despite poor performance
• Chair Kool's leadership issues, including compensation committee oversight, unwillingness to meet shareholders privately, and choosing cash over stock compensation

Positive

• None.

Negative

• 60% stock price decline over four years
• Stagnant revenue per share and declining net ARR
• Continued operating losses
• Controversial compensation metric changes favoring management over shareholders
• Poor corporate governance with Chair avoiding private shareholder meetings

Insights

Corporate Governance Expert

Ocho's shareholder activism exposes serious governance failures at Digimarc; compensation manipulations protected executives despite 60% stock decline and deteriorating fundamentals.

This shareholder letter from Ocho Investments (5.2% owner) represents a textbook case of justified investor activism triggered by severe governance breakdowns. The most alarming revelation is the suspicious timing of compensation metric changes from total ARR to "Gross New ARR Growth" just before a major contract expiration, effectively insulating executives from accountability for business deterioration. This change allowed management to receive 96% bonus payouts versus the 25% they would have received under the previous structure - a clear failure in compensation oversight.

Chair Kathleen Kool's decision to take her entire compensation in cash rather than stock speaks volumes about internal confidence, creating a profound misalignment with shareholder interests. This governance red flag is especially concerning from a Board Chair who should be demonstrating conviction in the company's future.

The 60% stock decline under CEO McCormack, combined with declining net ARR and continued losses, reflects fundamental performance problems that the Board has apparently failed to address. When governance structures permit executives to benefit while shareholders suffer substantial losses, the system is fundamentally broken. The Board's apparent unwillingness to engage with large shareholders except through public channels further demonstrates entrenchment and resistance to accountability that harms all investors.

Financial Analyst

Digimarc's executive compensation deliberately restructured to mask business deterioration, revealing serious fiscal mismanagement beneath troubling financial metrics.

The financial performance under CEO McCormack presents a troubling picture that justifies shareholder intervention. The 60% stock price erosion during his four-year tenure reflects fundamental business deterioration confirmed by stagnant revenue per share, declining net ARR, and persistent operating losses. These metrics indicate not just short-term challenges but sustained underperformance requiring urgent intervention.

What's particularly concerning from a financial governance standpoint is the manipulation of incentive structures. The shift from total ARR to "Gross New ARR Growth" as the primary compensation metric (65% weighting) effectively created a performance measurement vacuum. This revision allowed executives to achieve near-maximum bonuses even as the company's overall financial health deteriorated and it lost its largest commercial contract.

The resulting 96% payout versus the 25% that would have been awarded under the previous structure represents a significant transfer of shareholder wealth to management despite underperformance. This type of compensation engineering serves as a critical warning sign of governance failure, as it suggests leadership more focused on personal enrichment than sustainable business improvement. For investors, this distortion of incentives explains the disconnect between executive confidence and actual business results.

Calls to "WITHHOLD" Votes on CEO and Chair; "VOTE NO" on Say-on-Pay

AUSTIN, Texas, April 17, 2025 /PRNewswire/ -- Ocho Investments LLC ("Ocho"), which owns 5.2% of the stock of Digimarc Corporation (Nasdaq: DMRC) ("Digimarc" or the "Company"), today published a letter to the shareholders of Digimarc.

The letter informs shareholders that, at Digimarc's Annual Meeting scheduled for May 7, 2025, Ocho will vote "WITHHOLD" on CEO Riley McCormack and Chair Kathleen Kool. Also, Ocho will "VOTE NO" on the Company's say-on-pay proposal. Ocho strongly urges all Digimarc shareholders to vote in the same manner.

The letter outlines why Ocho believes these votes are in the best interests of the shareholders of Digimarc, including:

• WITHHOLD on Mr. McCormack because his four-year tenure has been marked by a 60% decline in the stock price, no growth in revenue per share and declining net ARR, continued operating losses and the need to curtail investments in employees and the business, and lost credibility with investors due to a lack of transparent communication.
• VOTE NO on say-on-pay because Digimarc's incentive plan misaligns the interests of management versus shareholders. The change of a key compensation metric, from total ARR to "Gross New ARR Growth", occurred just months before the expiration (and eventual loss) of the Company's largest commercial contract. This curious revision meant, even in the event Digimarc had lost all of its existing customers, there would be no effect on the largest weighting (65%) of management's cash bonuses. As a result, Digimarc's executives were paid nearly four times as much on their Annual Incentive Plan for 2024 (96% payout) than they would have under the prior (more sensible) plan (25% payout).
• WITHHOLD on Ms. Kool because she was Chair of the Compensation Committee when the aforementioned changes to the incentive plan occurred to the detriment of shareholders, she appears to have taken no action to address the Company's dramatic loss in shareholder value and CEO's poor performance, she has not been willing to meet with large shareholders unless they communicate publicly, and she has cast a vote of "no confidence" as the lone director to choose to receive none of her annual retainer in stock (opting for cash only).

Digimarc's shareholders deserve 1) an experienced CEO who can deliver tangible results and communicate transparently, 2) fair compensation practices to reward performance that is aligned with shareholder value, and 3) a strong and capable Chair who can effectively oversee the Board. All of the above are imminently possible; right now, we have none.

The full letter is available via this link: https://www.ochocapital.com/s/DMRC-04172025.pdf

About Ocho

Ocho is a family office that invests in public and private companies across a wide variety of industries. Our level of involvement can vary from passive investments to active engagement with management and board service.

Disclaimer

The views expressed in this letter represent the opinions of Ocho Investments LLC ("Ocho"), and are based on publicly available information with respect to the Company. Ocho reserves the right to change any of its opinions expressed herein at any time as it deems appropriate and disclaims any obligation to notify the market or any other party of such change. Ocho disclaims any obligation to update the information or opinions contained in this letter.

This letter is provided merely as information and is not intended to be, nor should it be construed as investment advice, or as an offer to sell or a solicitation of an offer to buy any security. This letter does not recommend the purchase or sale of any security, Ocho currently beneficially owns shares of the Company. Ocho is in the business of trading – buying and selling– securities and intend to continue trading in the securities of the Company. You should assume Ocho will from time to time sell all or a portion of its holdings of the Company in open market transactions or otherwise, buy additional shares (in open market or privately negotiated transactions or otherwise), or trade in options, puts, calls, swaps or other derivative instruments relating to such shares.

Media Contacts

Ocho can be reached at: info@ochocapital.com

View original content:https://www.prnewswire.com/news-releases/ocho-publishes-letter-to-the-shareholders-of-digimarc-corporation-302431226.html

SOURCE Ocho Investments LLC

FAQ

Why is Ocho Investments urging shareholders to vote against Digimarc's (DMRC) leadership in May 2025?

Ocho cites a 60% stock price decline, stagnant revenue, continued losses, and controversial changes to executive compensation metrics that misalign management and shareholder interests.

What are the specific compensation concerns raised about Digimarc (DMRC) in the 2025 shareholder letter?

The change from total ARR to 'Gross New ARR Growth' metrics allowed executives to receive 96% bonus payout versus 25% under the previous plan, despite poor company performance.

How has Digimarc's (DMRC) financial performance been under CEO Riley McCormack's leadership?

Under McCormack's four-year tenure, the company experienced a 60% stock price decline, no growth in revenue per share, declining net ARR, and continued operating losses.

What specific voting recommendations did Ocho make for Digimarc's (DMRC) May 2025 Annual Meeting?

Ocho recommended shareholders vote 'WITHHOLD' on CEO Riley McCormack and Chair Kathleen Kool, and 'VOTE NO' on the say-on-pay proposal.