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Digimarc Reports Second Quarter 2013 Financial Results

BEAVERTON, OR--(Marketwired - Jul 25, 2013) - Digimarc Corporation ( NASDAQ : DMRC ), a growing force in mobile discovery, reported financial results for the second quarter ended June 30, 2013.

Second Quarter 2013 Results
Revenue for the second quarter of 2013 increased 15% to $10.5 million from $9.1 million in the second quarter of 2012. The improvement was primarily a result of increased subscription revenue from the company's acquisition of Attributor Corporation in December 2012.

Operating income for the second quarter of 2013 was $1.4 million compared to $1.9 million in the same quarter a year-ago. The operating results for the second quarter of 2013 reflect the addition of Attributor's operations and increased investments in sales and marketing, and research and development initiatives.

Net income for the second quarter of 2013 was $0.6 million or $0.08 per diluted share compared to $1.2 million or $0.17 per diluted share in the second quarter of 2012. The decrease reflects the decline in operating income and a higher effective income tax rate.

At June 30, 2013, cash, cash equivalents and marketable securities increased $1.5 million to $42.1 million from $40.6 million at March 31, 2013. 

Strategy Update
The company expects to continue investing in strategic initiatives during the remainder of 2013 in order to meet various development and marketing deadlines, as well as building or improving aspects of its Intuitive Computing Platform with the objective of having a fully functional system completed by year end.

"With the recent release of audio watermarking, we have the major elements of the platform in place," said Bruce Davis, Digimarc's chairman and CEO. "We continue to make progress on developing a high performance invisible barcode for consumer packaged goods; and improving our Online Services Portal for encoding digital identities and configuring associated network services, various Adobe plug-ins for advanced users, and the Digimarc Discover mobile application UI and performance."

Digimarc has completed integration of its invisible barcode reader into a commercially available retail scanner from a leading vendor and is working on other such scanners. The increased rate of investment also supports information requests and collaboration initiatives of numerous infrastructure providers, and continuing basic R&D on a virtual wallet to add simple and effective mobile payment processing to the company's Intuitive Computing Platform. The company also plans to make significant changes to the acquired Guardian copyright protection solution to improve its cost effectiveness and competitive differentiation. 

Market development investments will include major presentations at two important industry events. In October, Digimarc will be a primary sponsor of the American Magazine Media Conference, the magazine industry's premier conference. In January, the company will have a booth at the National Retail Federation "BIG Show," where it will demonstrate its full mobile-optimized Shoppers Journey to retailers and potential business partners, in what is anticipated to be the largest marketing event in the company's history. 

"In addition to these product and market development activities," added Davis, "we continue to ramp basic and directed research, and associated IP development, having made several recent additions to our strategic IP development capability. The intended result of these investments is to foster an unprecedented growth in the rate of invention, size, and quality of our patent portfolio, laying a foundation for the next wave of patent income for Digimarc."

Conference Call
Digimarc will hold a conference call later today (Thursday, July 25, 2013) to discuss these results. Chairman and CEO Bruce Davis and CFO Mike McConnell 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 call will be broadcast live via webcast at www.digimarc.com/investors and www.earnings.com, and will be available for replay through August 25, 2013. The webcast will be archived and available on Digimarc's website at www.digimarc.com/investors/investor-events-and-webcasts.

For those who wish to listen to the call via telephone, please dial the telephone number below at least 5-10 minutes prior to the scheduled start time:

Listen-Only Number: 866-562-9934
Conference ID#: 19392140

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

About Digimarc
Digimarc Corporation ( NASDAQ : DMRC ), based in Beaverton, Oregon, is a leading innovator and provider of enabling technologies that create digital identities for all forms of media and many everyday objects. The embedded digital IDs are imperceptible to humans, but not to computers, networks and devices like mobile phones, which can now use cameras and microphones as sensory inputs to "see, hear and understand" the world around them within the context of their environment. Digimarc has built an extensive intellectual property portfolio with patents in digital watermarking, content identification and management, media and object discovery to enable ubiquitous computing, and related technologies. Digimarc develops solutions, licenses its intellectual property, and provides development services to business partners across a range of industries. For more information, visit www.digimarc.com.

Forward-looking Statements
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 increased subscription revenue from the company's acquisition of Attributor, increased investments in sales and marketing and research and development initiatives, the development and marketing objectives discussed under "Strategy Update" associated with the company's anticipated investment in strategic initiatives, including the unprecedented growth rate of the company's patent portfolio, achieving a fully functional Intuitive Computing Platform by year-end, and significant improvements to the Guardian copyright protection solution, 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 will be set forth in the company's Form 10-K for the year ended December 31, 2012 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.

   
   
Digimarc Corporation  
Consolidated Income Statement Information  
(in thousands, except per share amounts)  
(Unaudited)  
                         
    Three-Month Information     Six-Month Information  
    June 30,     June 30,     June 30,     June 30,  
    2013     2012     2013     2012  
Revenue:                                
  Service   $ 3,022     $ 2,609     $ 5,951     $ 5,657  
  Subscription     1,433       317       2,817       595  
  License     6,015       6,186       11,945       19,906  
    Total revenue     10,470       9,112       20,713       26,158  
                                 
Cost of revenue:                                
  Service     1,432       1,485       2,835       3,182  
  Subscription     588       45       1,223       92  
  License     100       53       196       119  
    Total cost of revenue     2,120       1,583       4,254       3,393  
                                 
Gross profit:                                
  Service     1,590       1,124       3,116       2,475  
  Subscription     845       272       1,594       503  
  License     5,915       6,133       11,749       19,787  
    Total gross profit     8,350       7,529       16,459       22,765  
                                 
Gross margin:                                
  Service     53 %     43 %     52 %     44 %
  Subscription     59 %     86 %     57 %     85 %
  License     98 %     99 %     98 %     99 %
    Percentage of gross profit to total revenue     80 %     83 %     79 %     87 %
                                 
Operating expenses:                                
  Sales and marketing     1,563       970       2,840       1,977  
  Research, development and engineering     2,822       2,146       5,547       4,144  
  General and administrative     2,348       2,191       4,534       4,949  
  Intellectual property     261       291       538       610  
    Total operating expenses     6,994       5,598       13,459       11,680  
                                 
Operating income     1,356       1,931       3,000       11,085  
                                 
Net loss from joint ventures     -       -       -       (1,107 )
Other income, net     19       33       48       91  
                                 
Income before income taxes     1,375       1,964       3,048       10,069  
                                 
Provision for income taxes     (773 )     (748 )     (1,475 )     (3,854 )
Net income   $ 602     $ 1,216     $ 1,573     $ 6,215  
                                 
Earnings per common share:                                
Earnings per common share - basic   $ 0.08     $ 0.17     $ 0.22     $ 0.88  
Earnings per common share - diluted   $ 0.08     $ 0.17     $ 0.21     $ 0.84  
  Weighted average common shares outstanding - basic     6,850       6,737       6,844       6,738  
  Weighted average common shares outstanding - diluted     7,090       6,993       7,078       6,999  
                                 
Cash dividends declared per common share:   $ 0.11     $ 0.11     $ 0.22     $ 0.11  
                                 
                                 
 
 
Digimarc Corporation
Consolidated Balance Sheet Information
(in thousands)
(Unaudited)
         
         
    June 30,   December 31,
    2013   2012
Assets            
  Current assets:            
    Cash and cash equivalents (1)   $ 8,305   $ 6,866
    Marketable securities (1)     26,192     25,403
    Trade accounts receivable, net     4,519     4,216
    Other current assets     1,306     1,016
      Total current assets     40,322     37,501
  Marketable securities (1)     7,584     6,787
  Property and equipment, net     1,408     1,453
  Intangibles, net     6,689     6,721
  Goodwill     1,114     1,114
  Deferred tax assets, net     2,188     3,589
  Other assets     212     166
      Total assets   $ 59,517   $ 57,331
             
Liabilities and Shareholders' Equity            
  Current liabilities:            
    Accounts payable and other accrued liabilities   $ 1,405   $ 1,143
    Deferred revenue     3,155     2,512
      Total current liabilities     4,560     3,655
  Deferred rent and other long-term liabilities     491     673
      Total liabilities     5,051     4,328
             
  Commitments and contingencies            
             
  Shareholders' equity:            
    Preferred stock     50     50
    Common stock     7     7
    Additional paid-in capital     41,360     39,869
    Retained earnings     13,049     13,077
      Total shareholders' equity     54,466     53,003
             
      Total liabilities and shareholders' equity   $ 59,517   $ 57,331
             
             
(1) Aggregate cash, cash equivalents, short- and long-term marketable securities was $42,081 and $39,056 at June 30 2013 and December 31, 2012, respectively.
             
             
   
   
Digimarc Corporation  
Consolidated Cash Flow Information  
(in thousands)  
(Unaudited)  
                         
    Three-Month Information     Six-Month Information  
    June 30,     June 30,     June 30,     June 30,  
    2013     2012     2013     2012  
Cash flows from operating activities:                                
  Net income   $ 602     $ 1,216     $ 1,573     $ 6,215  
  Adjustments to reconcile net income to net cash provided by operating activities:                                
    Depreciation and amortization of property and equipment     162       149       320       292  
    Amortization and write-off of intangibles     303       69       602       154  
    Gain on reversal of contingent merger consideration     -       -       (190 )     -  
    Stock-based compensation     1,077       1,401       2,169       2,757  
    Net loss from joint ventures     -       -       -       1,107  
    Deferred income taxes     1,315       (541 )     1,406       62  
    Tax benefit from stock-based awards     203       450       -       1,893  
    Excess tax benefit from stock-based awards     -       (203 )     -       (1,538 )
  Changes in operating assets and liabilities:                                
      Trade accounts receivable, net     (75 )     (73 )     (303 )     959  
      Other current assets     (227 )     (34 )     (271 )     132  
      Other assets     (47 )     58       (46 )     141  
      Accounts payable and other accrued liabilities     441       (264 )     228       (291 )
      Income taxes payable     (754 )     (46 )     24       1,014  
      Deferred revenue     (195 )     (244 )     637       (327 )
        Net cash provided by operating activities     2,805       1,938       6,149       12,570  
                                 
Cash flows from investing activities:                                
    Purchase of property and equipment     (189 )     (106 )     (275 )     (254 )
    Capitalized patent costs and purchased intellectual property     (278 )     (192 )     (506 )     (657 )
    Investment in joint ventures, net     -       (692 )     -       (692 )
    Sale or maturity of marketable securities     12,358       46,143       35,474       69,136  
    Purchase of marketable securities     (15,127 )     (46,732 )     (37,060 )     (75,224 )
        Net cash used in investing activities     (3,236 )     (1,579 )     (2,367 )     (7,691 )
                                 
Cash flows from financing activities:                                
    Issuance of common stock     -       531       -       603  
    Purchase of common stock     (94 )     (1,388 )     (742 )     (2,187 )
    Cash dividends paid     (800 )     (779 )     (1,601 )     (779 )
    Excess tax benefit from stock-based awards     -       203       -       1,538  
        Net cash used in financing activities     (894 )     (1,433 )     (2,343 )     (825 )
                                 
        Net (decrease) increase in cash and cash equivalents (2)   $ (1,325 )   $ (1,074 )   $ 1,439     $ 4,054  
                                 
                                 
    Cash equivalents and marketable securities at beginning of period     40,637       44,005       39,056       33,378  
    Cash equivalents and marketable securities at end of period     42,081       43,520       42,081       43,520  
(2) Net increase (decrease) in cash, cash equivalents and marketable securities   $ 1,444     $ (485 )   $ 3,025     $ 10,142