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BOARD OF DIRECTORS
Katie Kool
Independent Director
Chair of the Board
Former Chief Executive Officer at Tide Cleaners, a wholly owned
subsidiary of The Procter & Gamble Company
LaShonda Anderson-Williams
Independent Director
Chief Customer & Commercial Officer of Salesforce Industries at
Salesforce
Sheila Cheston
Independent Director
Former Corporate Vice President and General Counsel at
Northrop Grumman Corporation
Sandeep Dadlani
Independent Director
Executive Vice President, Chief Digital and Technology Officer at
UnitedHealth Group
Dana Mcilwain
Independent Director
Former Chief Administration Officer and Network Operations
Leader at PricewaterhouseCoopers (PwC)
Riley McCormack
Chief Executive Officer and President at Digimarc Corporation
Michael Park
Independent Director
Senior Vice President and Global Head of AI Go-To-Market at
ServiceNow
EXECUTIVE OFFICERS
Riley McCormack
Chief Executive Officer and President
Charles Beck
Executive Vice President, Chief Financial Officer and Treasurer
Tom Benton
Executive Vice President and Chief Revenue Officer
George Karamanos
Executive Vice President, Chief Legal Officer and Secretary
Tony Rodriguez
Executive Vice President and Chief Technology Officer
Ken Sickles
Executive Vice President and Chief Product Officer
TRANSFER AGENT
Broadridge Corporate Issuer Solutions, Inc.
P. O. Box 1342, Brentwood, NY 11717
(866) 321 8022
shareholder@broadridge.com
www.broadridge.com
DIGIMARC CORPORATION
8500 SW Creekside Place, Beaverton, OR 97008 USA
T: +1 800 344 4627
T: +1 503 469 4800
F: +1 503 469 4777
www.digimarc.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2024
OR
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number 001-34108
DIGIMARC CORPORATION
(Exact name of registrant as specified in its charter)
Oregon
26-2828185
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
8500 SW Creekside Place, Beaverton, Oregon 97008
(Address of principal executive offices) (Zip Code)
(503) 469-4800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
Common Stock, $0.001 Par Value Per Share
DMRC
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock, par value $0.001 per share, held by non-affiliates of the registrant, based on the closing price of our
common stock on the Nasdaq Global Market on the last business day of the registrant’s most recently completed fiscal second quarter (June 30, 2024), was
approximately $539 million. Shares of common stock beneficially held by each officer and director have been excluded from this computation because
these persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purposes.
As of February 21, 2025, 21,548,579 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement pursuant to Regulation 14A (the “Proxy Statement”) for its 2025 annual meeting of shareholders are
incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K. The registrant intends to file the Proxy
Statement not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Auditor Name: KPMG LLP
Auditor Location: Portland, Oregon
Auditor Firm ID: 185
Table of Contents
PART I
Item 1.
Business .............................................................................................................................................................. 1
Item 1A. Risk Factors ........................................................................................................................................................ 6
Item 1B. Unresolved Staff Comments ............................................................................................................................... 17
Item 1C. Cybersecurity ...................................................................................................................................................... 17
Item 2.
Properties ............................................................................................................................................................ 18
Item 3.
Legal Proceedings ............................................................................................................................................... 18
Item 4.
Mine Safety Disclosures ..................................................................................................................................... 18
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ......................................................................................................................................................... 19
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .............................. 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ............................................................................ 36
Item 8.
Financial Statements and Supplementary Data ................................................................................................... 36
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................. 36
Item 9A. Controls and Procedures ..................................................................................................................................... 36
Item 9B. Other Information ............................................................................................................................................... 37
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections ............................................................... 37
PART III
Item 10. Directors, Executive Officers and Corporate Governance .................................................................................. 38
Item 11. Executive Compensation ..................................................................................................................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ............ 38
Item 13. Certain Relationships and Related Transactions, and Director Independence .................................................... 38
Item 14. Principal Accountant Fees and Services ............................................................................................................. 38
Item 15. Exhibits and Financial Statement Schedules ....................................................................................................... 39
SIGNATURES ..................................................................................................................................................................... 44
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1
PART I
Unless the context otherwise requires, references in this Annual Report on Form 10-K to “Company,” “Digimarc,”
“we,” “our” and “us” refer to Digimarc Corporation.
All dollar amounts are in thousands except per share amounts or unless otherwise noted. The percentages within the
tables may not sum to 100% due to rounding.
Digimarc, Digimarc Barcode, The Barcode of Everything, Barcode of Everything, and the circle-d logo are
registered trademarks of Digimarc Corporation. EVRYTHNG and EVRYTHNG PRODUCT CLOUD are registered
trademarks of EVRYTHNG Limited, a wholly owned subsidiary of Digimarc.
ITEM 1: BUSINESS
The following discussion of Digimarc’s business contains forward-looking statements relating to future events or the
future financial performance of Digimarc. Our actual results could differ materially from those anticipated in these
forward-looking statements. Please see the discussion regarding forward-looking statements included in this Annual Report
on Form 10-K in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under
the caption “Forward-Looking Statements.”
The following discussion of our business should be read in conjunction with our consolidated financial statements
and the related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K.
Overview
Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30
years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon
one or both of the following two things: the identification and the authentication of physical and digital items, often at
massive scale, and often where other methods of identification or authentication don’t work well or don’t work at all.
The Digimarc Illuminate platform is a distinctive software as a service (“SaaS”) cloud-based platform for digital
connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response
(“QR”) codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a
centralized platform for capturing insights about digital interactions and automating activities based on that information.
The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable
ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust
and connectivity. All of the Company’s products are complementary to each other, providing exponential benefits when
combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc’s products
provide many benefits including:
•
Digimarc Automate improves product inspection by embedding imperceptible digital watermarks into
products, labels, and packaging, which are detectable by standard vision systems. This significantly reduces
mixing errors and mislabeling, ensuring higher accuracy and efficiency in production, fulfillment, and
distribution facilities without additional costs for special inks or hardware. By enabling real-time data analysis
and minimizing human error, Digimarc Automate enhances quality assurance, reduces waste, and lowers the
risk of product recalls, giving brands a competitive edge.
•
Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned
communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant
QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences
(including personalized and automated loyalty and rewards programs) based on a variety of factors such as
time and location or previous behavior. Connecting engagements across the physical and digital worlds in a
singular view results in powerful new capabilities and insights for brands.
2
•
Digimarc Recycle increases the quality and quantity of recycled materials by digitizing products and
packaging with digital watermarking technology. Coupled with consumer engagement capabilities, brands
can leverage a direct, digital communications channel. Plus, Digimarc Recycle creates a cloud-based record
of never-before-seen post-consumption data to provide new insights that benefit stakeholders across the value
chain, including brands, facility operators, and Producer Responsibility Organizations (“PROs”).
•
Digimarc Retail Experience delivers smarter, connected packaging that supports next-generation retail
checkout systems, including checkout efficiency (faster scanning) and checkout effectiveness (reduced
shrinkage including gift card and price look-up fraud prevention), optimized operational processes, advanced
consumer engagement experiences, compliance with upcoming industry standards, and the collection of
powerful first-party data and consumer insights.
•
Digimarc Validate supports authentication in the physical and digital worlds to help ensure online
interactions can be trusted and that real products and digital assets are genuine and in the right place.
Digimarc’s technology protects digital images, audio, product packaging, gift cards, and other physical items
by delivering exclusive, covert digital watermarks and/or dynamic QR codes and a cloud-based record of
product authentication information. In addition, consumer engagement capabilities provide a direct, digital
communications channel.
Digimarc has maintained a relationship with a consortium of central banks (the “Central Banks”) for nearly 30 years,
providing trusted technology to help deter digital counterfeiting of currency. This relationship was the first commercially
successful large-scale use of our technologies and protects billions of banknotes in circulation globally.
In February 2024, Digimarc announced the availability of its next-generation digital watermarks featuring more
advanced security and greater access control. Digimarc’s next-generation digital watermarks have also been optimized to
efficiently address multiple use cases while simultaneously delivering pronounced improvements in both imperceptibility
and performance.
In March 2024, Digimarc announced Digimarc Engage, a product for direct-to-consumer digital communication that
is designed to transform the way businesses, brands, and consumers interact. Digimarc Engage is the industry’s first
consumer engagement solution offering contextual and differentiated experiences across both physical items and digital
media – powering integrated marketing campaigns with richer consumer experiences while revealing never-before-
available omnichannel data insights to inform smarter campaigns for businesses and brands.
In June 2024, Digimarc launched Digimarc Automate, an innovative automated product inspection solution designed
to enhance accuracy and efficiency in production, fulfillment, and distribution facilities. Utilizing advanced digital
watermarking technology, Digimarc Automate surpasses systems using traditional product codes, enhancing quality
assurance, waste reduction, data collection, and cost savings.
In October 2024, Digimarc announced the release of its new Digimarc Recycle sortation software. This technological
advancement reduces the cost of Digimarc Recycle-compliant hardware by nearly 50%, significantly lowering the barrier of
entry for recycling and waste sortation facilities around the world that are seeking a more sophisticated solution.
In October 2024, Digimarc announced the launch of the Digimarc Validate mobile application, a groundbreaking
out-of-the-box solution designed to help businesses combat counterfeit products. The new app empowers field agents with a
simple, cost-effective tool for instant product authentication, protecting customers, securing revenue, and preserving brand
integrity.
In October 2024, Digimarc also announced the release of the industry’s first implementation of digital watermarking
technology approved for use in the Coalition for Content Provenance and Authenticity’s (“C2PA”) latest standard, version
2.1. This milestone marks a critical step forward in ensuring the authenticity of digital content in an era where generative
artificial intelligence (“GenAI”) is rapidly reshaping the media landscape.
In November 2024, Digimarc introduced its most advanced anti-counterfeit solution to date. Digimarc’s new Digital
Security Solution empowers security solutions providers and businesses with the tools needed to protect government
programs, businesses, and citizens worldwide against counterfeit threats. This launch leverages proven technology and
expertise gained through the company’s nearly 30-year relationship with the world’s central banks.
3
Customers and Business Partners
We generate revenue through two primary markets: commercial and government. Commercial includes retailers,
consumer brands, their suppliers and related solution providers, as well as media, entertainment, and other customers.
Government includes the Central Banks and other government customers.
We derive our revenue primarily from software subscriptions and software development services. Subscriptions for
our software products are generally sold to retailers, consumer brands, their suppliers and related solution providers.
Software development services are generally provided to the Central Banks. During 2024, we generated 41% of our
revenue under the long-term contract with the Central Banks, with whom we have been developing, deploying, supporting
and enhancing a system to deter digital counterfeiting of currency for nearly 30 years. In December 2022, the 5-year
extension option included in our contract with the Central Banks was exercised two years early. The contract now runs
through December 31, 2029.
Technology and Intellectual Property
We seek patent protection for our inventions to differentiate our products and technologies, mitigate infringement
risks, and develop opportunities for licensing. Our patent portfolio covers a wide range of methods, applications, system
architectures and processes.
Our intellectual property contains many innovations in digital watermarking, content and object recognition, product
authentication, and related fields. To protect our inventions, we have implemented an extensive intellectual property
protection program that relies on a combination of patent, copyright, trademark and trade secret laws, and nondisclosure
agreements and other contracts. As a result, we believe we have one of the world’s most extensive patent portfolios in
digital watermarking and related fields, with approximately 820 U.S. and foreign patents granted and applications pending
as of December 31, 2024. The patents in our portfolio each have a life of approximately 20 years from the patent’s effective
filing date.
For a discussion of activities and costs related to our research and development in the last two years, see “Research,
development and engineering” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
Markets
Our patented technologies are used in various automatic identification products and solutions supporting a variety of
media objects, from consumer goods to movies and music, digital images, and banknotes. Each media object enabled by
our technology creates the potential for several applications including in the areas of automation, authentication,
sustainability, and customer trust and connectivity.
We sell access to our platform and products through both direct and indirect sales channels. Our sales are generally
focused in North America and Europe.
We believe that our existing products represent only a small portion of the potential market for our technology.
Competition
No single competitor or small number of competitors dominate our market. Our competitors vary depending on the
application of our products and services. We generally compete with non-digital watermarking technologies. These
alternatives include, among other things, encryption-based security systems and technologies and solutions based on
fingerprinting, pattern recognition, and traditional barcodes. Our competitive position in digital watermarking applications
is strong because of our large, high-quality, sophisticated patent portfolio, our trade secrets and know-how, and our
substantial and growing amount of intellectual property in related innovations for the automatic identification of physical
and digital media objects that span basic technologies, applications, system designs and business processes. Our intellectual
property portfolio allows us to use proprietary technologies that are well-regarded by our customers and partners, and not
available to our competitors without a license. We compete based on the variety of features we offer and a traditional
cost/benefit analysis against alternative technologies and solutions. Our competitive position within some markets may be
affected by factors such as reluctance to adopt new technologies and by changes in government regulations.
4
Backlog
Based on projected commitments we have for the periods under contract with our respective customers, we
anticipate our current contracts as of December 31, 2024, will generate a minimum of $36.2 million in future revenue,
compared to $43.7 million as of December 31, 2023. The decrease reflects the impact of revenue recognized on our existing
backlog, a shortened committed contractual period of an existing contract, and the expiration of a commercial contract in
June 2024, partially offset by new contracts entered into in 2024. We expect approximately $20.2 million of
the $36.2 million to be recognized as revenue during 2025.
Some factors that lead to increased backlog include:
•
contracts with new customers;
•
renewals with current customers;
•
add-on orders with customers; and
•
contracts with longer contractual periods replacing contracts with shorter contractual periods.
Some factors that lead to decreased backlog include:
•
recognition of revenue associated with existing backlog;
•
contracts with shorter contractual periods replacing contracts with longer contractual periods;
•
modifications to existing contracts;
•
contract minimum payments ending; and
•
expiration of contracts with existing customers.
The mix of these factors, among others, dictates whether our backlog increases or decreases for any given period.
Our backlog may not result in actual revenue in any particular period, because the orders, awards and contracts included in
our backlog may be subject to modification, cancellation or suspension. We may not realize revenue on certain contracts,
orders or awards included in our backlog, or the timing of any realization may change.
Human Capital Resources and Management
Employees and Labor Relations
At December 31, 2024, we had 215 full-time employees, including 109 in research, development and engineering;
70 in sales, marketing, product, operations and customer support; and 36 in finance, administration, information
technology, intellectual property and legal.
Our employees are not covered by any collective bargaining agreement, and we have never experienced a work
stoppage. We believe that our relations with our employees are good. Voluntary employee turnover was 5% for the
year ended December 31, 2024.
Values
Culture is critically important to Digimarc’s success. We incorporate our core values in daily interactions with
colleagues, customers, vendors and other stakeholders. Our core values are embodied in the words Collaborative, Curious
and Courageous.
Digimarc Values
Collaborative
Curious
Courageous
We: Ask for help
Prioritize mentoring
Build trust and transparency
Support innovative thinking
Continuously seek clarity
Listen to our stakeholders
Challenge our own biases
Cultivate collective experiences
Seek out and support ideas
We Do Not: Avoid difficult conversations
Lose sight of our purpose
Assume we have all the answers
5
Digimarc follows a Purposeful Work approach which enables teams to determine the right balance of working
between home and office locations, considering both the company and departmental needs, and those of our staff.
Giving Back to Our Communities
At Digimarc, giving back to our communities isn’t just an act of goodwill—it’s part of our identity. In 2024, we
launched our Month of Giving, empowering employees to volunteer with organizations they’re passionate about. As part of
this initiative, our Beaverton team came together to support a local soup kitchen, making a meaningful difference in the
lives of those we serve.
Compensation and Benefits
Our compensation program is designed to support, reinforce, and align our values, business strategy, and operational
and financial goals of profitable growth and appreciation of our value in the public equity markets.
Digimarc’s compensation program is designed to pay all our employees fairly for their performance and
contributions. We do this by balancing a wide variety of important internal and external factors aligned to our Company
culture and values. Compensation and benefits are reviewed against the market annually, at a minimum. In 2024, we
engaged a third-party consultant to review our compensation bands and ensure we are offering competitive compensation
packages. Through this engagement we enhanced our benchmarks to align with public SaaS companies.
We strive to provide a base salary and restricted stock units that are competitive with the market and compensate
above market for outstanding performance. The Company uses restricted stock units to incentivize candidates and high
performing employees that contribute to the strategic goals of the Company and drive Company value. Performance stock
units are used with our executive management team and are awarded based upon delivering established financial and
strategic goals. Equity incentive compensation promotes a sense of ownership and reinforces our philosophy that all
employees are valued shareholders in the long-term success of the business. In alignment with our Company culture, we
strive to communicate openly about the objectives of the Company and the design of the compensation program. The
compensation process is intended to be fair so that all employees and managers understand the goals and the outcomes of
the process.
We are committed to administering the compensation program in a manner that is transparent, consistent, and free of
discrimination. We post salary ranges for new positions and do not ask for the previous salary history of our candidates. We
promote internal mobility and commit to transparency in how we level and promote our employees.
We also believe that employees require time to balance the many needs of their lives, both at work and outside of
work. Our policies for Paid Time Off (“PTO”) are designed to provide employees with time off for vacation, sick days, or
other personal reasons. Full time employees at the exempt level in the U.S. are eligible for the Self-Managed PTO program.
Non-exempt and part-time U.S. employees are eligible for the Granted PTO program. Under the Self-Managed PTO
program, eligible employees may take as much paid time off from work as is consistent with their duties and ability to meet
performance expectations.
Learning and Development
We invest resources to develop the talent needed to remain at the forefront of innovation. We have a performance
management system to support continuous learning and development. Through the use of anonymous surveys, employees
can voice their perceptions of the Company and their work experience, including learning and development opportunities.
We have strong participation in our surveys and engage our managers to respond to areas that employees have identified as
needing improvement or given lower scores.
We support training and development programs for our employees through tuition reimbursement, online training
programs such as Digimarc University, LinkedIn Learning, conferences, seminars, on-the-job training, and skill
certifications. We also encourage and foster onsite training programs and mentoring.
Health, Safety and Wellness
We are committed to a safe and drug-free workplace. We continually invest in programs designed to improve
physical, mental, and social well-being. We provide access to a variety of innovative, flexible, and convenient health and
wellness programs, for our employees and their families.
6
Governance and Oversight
The executive management team is entrusted with developing and advancing our human capital strategy, which is
reviewed by the Board of Directors. Our Chief People Officer is charged with developing and stewarding this strategy on a
Company-wide basis. This incorporates a broad range of dimensions, including culture, values, labor and employee
relations, leadership capabilities, performance management and total rewards. Key processes include ongoing performance
and development feedback, and periodic engagement surveys reviewed by management and the Board of Directors. All
employees have access to resources on topics regarding integrity, our code of conduct, diversity, compliance, and
workplace harassment. Employees are encouraged to address any concerns through multiple channels, including
anonymously whenever possible, without fear of retaliation or retribution.
Available Information
We make available free of charge through our website at http://www.digimarc.com/about/investors our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these and
other reports filed or furnished by us pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we file these materials with the Securities and Exchange Commission (the “SEC”). The content
on any website referred to in this annual report is not incorporated by reference in this annual report unless expressly noted.
ITEM 1A: RISK FACTORS
Our business, financial condition, results of operations and cash flows may be affected by a number of factors. The
following risk factors identify risks of which we are aware and that we consider to be material to our business. If any of the
following risks and uncertainties develops into actual events, our business, financial condition, results of operations or cash
flows could be materially adversely affected. In that case, the trading price of our common stock could decline.
RISKS RELATED TO OUR BUSINESS
(1) As a purveyor of disruptive technology, if our partners and potential customers defer or delay adopting and
implementing our technology, or if competitors or other market participants successfully engage in campaigns to
discredit our technology, our revenues will be negatively affected.
While the Company’s business in the government market remains relatively strong and predictable, our primary
source of revenue growth—the commercial market—is subject to the market forces and adoption curves common to other
disruptive technologies. The commercial market is in its earlier stages of development. If widespread adoption of Digimarc
technology in the commercial market takes longer than anticipated, we will continue to experience operating losses. For
example, we expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial
contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and
contribute $1.1 million of subscription revenue in 2025. Additionally, our subscription revenue in 2025 may also be
impacted negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This
contract contributed $2.1 million of subscription revenue in 2024.
We expect companies marketing competing technologies to compete vigorously in the marketplace, and to seek to
preserve their market share. To the extent these companies succeed in defending their market position, our ability to
achieve profitable operations will be impeded.
With respect to anticipated sales growth and prospects for the commercial market, our two major avenues for
revenue generation are direct sales to customers and indirect sales through partners. Our direct sales force is relatively new.
Most of our partners are also relatively new to our products. Thus, the anticipated sources of revenue growth for the
commercial market are unproven. We are executing strategies intended to make each of these means of revenue generation
more effective, but we provide no assurance that we will execute these strategies successfully.
(2) Our future growth will depend to a material extent on the successful advocacy of our technology by our partners
to their customers, and implementation of our technology in solutions propagated by our partners and provided by
third parties.
Our business has long relied on the success of business partners. Continuing our success is largely dependent on a
new generation of business partners supporting Digimarc technology in the commercial market. We have entered into
agreements with numerous partners to propagate and support our technology, including brand deployment and pre-media
service providers and consumer packaging solutions companies, all of which offer Digimarc digital watermarking services
7
to consumer-packaged goods companies. We have also entered into agreements with numerous scanner manufacturers to
enable their devices to read Digimarc watermarks. We provide no assurance that these collaborations will successfully
generate revenue for our business.
If our partners are not successful in advocating and deploying our technology, we may not be able to achieve and
sustain profitable operations. If other business partners who include our technology in their products cease to do so, or we
fail to successfully collaborate with third parties or to obtain other partners who will do so, or these partners are
unsuccessful in their efforts, expanding deployment of our technology will be adversely affected. Consequently, our ability
to increase revenue could be adversely affected, and we may suffer other adverse effects to our business. In addition, if our
technology does not perform according to market expectations, our future sales would suffer as customers employ
alternative technologies.
(3) If leading companies in the consumer-packaged goods industry and related industries downplay, minimize or
reject the use of our technology, our product deployment may be slowed, and we may be unable to achieve profitable
operations.
Our business endeavors in the commercial market may be impeded or frustrated by larger, more influential
companies or industry trade groups downplaying, minimizing or rejecting the value or use of our technology. A negative
position by such companies or groups could result in obstacles for us that we would be incapable of overcoming and may
block or impede the adoption of our technology. Such a development would make the achievement of our business
objectives in this market difficult or impossible. For example, we expect that our subscription revenue in 2025 will be
negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription revenue in
2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025.
Additionally, our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract
in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024.
(4) We are subject to risks encountered by companies developing and relying upon new technologies, products, and
services to achieve and sustain profitable operations.
Our business and prospects must be considered in light of the risks and uncertainties to which companies with new
and rapidly evolving technology, products, and services are exposed. These risks include the following:
•
we may be unable to develop sources of new revenue or sustainable growth in revenue because our current
and anticipated technologies, products, and services may be inadequate or may be unable to attract or retain
customers;
•
intense competition from existing and new technologies and providers and rapid technological change could
adversely affect the market’s acceptance of our products and services; and
•
we may be unable to develop and maintain new technologies upon which our products and services are
dependent, which may cause our products and services to be less sustainable and competitive or which could
make it harder for us to expand our revenue and business.
(5) A significant portion of our current and potential future revenue is subject to commercial and government
contracts and the development of new markets that may involve unpredictable delays and other unexpected changes.
Such volatility and uncertainty might limit our actual revenue in any given quarter or year.
We derive a significant portion of our revenue from contracts tied to development schedules or development of new
markets, which could shift for months, quarters, or years as the needs of our customers and the markets in which they
participate change. Government agencies and commercial customers also face budget pressures that introduce added
uncertainty. Any shift in development schedules, the markets in which we or our partners participate, or customer
procurement processes, which are outside our control and may not be predictable, could result in delays in revenues
forecasted for any particular period, could affect the predictability of our quarterly and annual results, and might limit our
actual revenue recognized in any given quarter or year, resulting in reduced and less predictable revenue, adversely
affecting profitability.
We are expanding into new markets, which involve inherent risk and unpredictability. With our acquisition of
EVRYTHNG, we expanded into applications of the product cloud in conjunction with Digimarc watermarks and other data
carriers. As we seek to expand outside our areas of historical expertise, we lack the history and insight that benefited us in
fields conventionally using digital watermarking. Although we have extensive experience in the commercial application of
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digital watermarking, we are investing in but may not be as well-positioned for these other opportunities. Accordingly, it
may be difficult for us to achieve success in other technologies we might pursue.
(6) A small number of customers account for a substantial portion of our revenue, and the loss of any large contract
could materially disrupt our business.
Historically, we have derived a significant portion of our revenue from a limited number of customers. Five
customers represented approximately 76% of our revenue for the year ended December 31, 2024.
Nearly half of our revenue came from our contract with the Central Banks in 2024 and 2023. That contract expires at
the end of 2029. The customer contracts we enter into may contain termination for convenience provisions or may not
include automatic renewal provisions. If we were to lose any such contract for any reason, or if our relationship with these
customers or the Central Banks were materially modified, our financial results would be adversely affected. For example,
we expect our government service revenue in 2025 to be 12% to 14% lower than 2024 due to a smaller approved budget for
program work in 2025.
We expect to continue to depend upon a small number of customers for a significant portion of our revenue for the
foreseeable future. The loss of, or decline in, orders or backlog from one or more major customers could reduce our revenue
and have a material adverse effect on our financial results. For example, we expect that our subscription revenue in 2025
will be negatively impacted by the termination of a commercial contract that contributed $3.3 million of subscription
revenue in 2024. This contract is expected to end in April 2025 and contribute $1.1 million of subscription revenue in 2025.
Additionally, our subscription revenue in 2025 may also be impacted negatively by the expiration of a commercial contract
in June 2024 that may or may not be extended. This contract contributed $2.1 million of subscription revenue in 2024.
(7) The market for our products is highly competitive, and alternative technologies or larger companies that compete
with us may be more successful than us in gaining market share, which would decrease our revenue and profits.
The markets in which we compete for business are intensely competitive and rapidly evolving. We expect
competition to continue from both existing competitors and new market entrants. We face competition from other
companies and from alternative technologies, including some of our customers, partners, and licensees. We also may face
competition from unexpected sources.
Alternative technologies that may directly or indirectly compete with our products include:
•
generative Artificial Intelligence (“AI”) technologies — AI technologies that employ machine learning to
train AI models to embed and detect identifying information within digital content;
•
traditional anti-counterfeiting technologies — solutions designed to deter counterfeiting including optically
sensitive ink, magnetic threads and other materials used in the printing of banknotes used by many
government agencies (that compete for budgetary outlays);
•
object and image recognition (e.g., trained classifiers employing machine learning) — technologies that
recognize one or several pre-specified or learned objects or object classes, usually together with their two-
dimensional positions in the image or three-dimensional poses in the scene;
•
radio frequency tags — embedded chips that emit a signal when in close proximity with a receiver, used in
some photo identification credentials, labels and tags;
•
digital fingerprints and signatures — a metric, or metrics, computed solely from a source image or audio or
video track, that can be used to identify an image or track, or authenticate the image; and
•
object sorting technologies — chemical tracers, taggants, Near Infrared sorters, dot or matrix codes, used to
identify and sort objects, and that can be used in connection with systems using a combination of these
methods and machine learning.
In the competitive environments in which we operate, product creation, development and marketing processes
relating to technology are uncertain and complex and require accurate prediction of demand as well as successful
management of various risks inherent in technology development. In light of these uncertainties, it is possible that our
failure to successfully accommodate future changes in technologies related to our technology could have a long-term
negative effect on our growth and results of operations.
9
As we work to achieve market acceptance of our products and services, new developments are expected to continue,
and discoveries by others, including current and potential competitors, could render our products and
services uncompetitive. Moreover, because of rapid technological changes, we may be required to expend greater amounts
of time and money than anticipated to develop new products and services, which in turn may require greater revenue
streams from those products and services to cover developmental costs. Many of the companies that compete with us for
some of our business, as well as other companies with whom we may compete with in the future, are larger and may have
stronger brand recognition and greater technical, financial, marketing, and/or political resources than we do. These
attributes could enable these companies to have more success in the market than we have, either by providing better
products or better pricing than we can provide. We may be unable to compete successfully against current or future
participants in our markets or against alternative technologies, and the competitive pressures we face may have a materially
adverse effect on our financial position, results of operations or cash flows.
(8) An increase in our operations outside of the U.S. subjects us to risks additional to those to which we are exposed
in our domestic operations.
We believe that revenue from sales of products and services to commercial customers outside the U.S. could
represent a growing percentage of our total revenue in the future. Digimarc technology is not bounded geographically, and
we believe our technology will be deployed globally. As such, certain contracts may be made and performed, in whole or in
part, outside of the United States. Additionally, with the acquisition of EVRYTHNG, our workforce expanded significantly
into the United Kingdom and other European countries.
International operations are subject to a number of risks that can adversely affect our sales of products and services
to customers outside of the U.S., or expose us to additional expense or liabilities, including the following:
•
difficulties and costs of staffing, developing and managing foreign operations as a result of distance,
language, and cultural differences;
•
the effect of laws governing our business, employee, and contractor relationships, and the existence of
workers’ councils and labor unions in some jurisdictions;
•
changes in foreign government regulations and security requirements;
•
export license requirements, tariffs, retaliatory trade measures;
•
difficulty in protecting intellectual property;
•
difficulty in collecting accounts receivable;
•
currency fluctuations; and
•
political and economic uncertainty or instability.
If we fail to comply with the many international laws and regulations that apply to our business, we may be subject
to significant fines, penalties, or liabilities for noncompliance. These factors may result in greater risk of performance
problems or of reduced profitability with respect to our international programs in these markets. In addition, if foreign
customers, in particular foreign government authorities, terminate or delay the implementation of our products and services,
it may be difficult for us, or we may not be able, to recover our potential losses.
Geopolitical tensions and the potential for isolationist policies implemented by governments around the world may
affect international relations, resulting in reduced market opportunities and diminished demand in foreign markets. In some
cases, such tensions could lead to national security-related restrictions that directly impact our business operations.
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(9) We depend on our key employees for our future success. If we are not able to retain, hire, or integrate these
employees, we may not be able to meet our commitments.
Due to the high level of technical expertise that our industry requires, our ability to successfully develop, market,
sell, license and support our products, services, and intellectual property depends to a significant degree upon the continued
contributions of our key personnel in engineering, sales, marketing, operations, and legal, many of whom would be difficult
to replace. We believe our future success will depend in large part upon our ability to retain our current key employees and
our ability to attract, integrate, and retain new personnel in the future. It may not be practical for us to match the
compensation some of our employees could be offered by other employers. In addition, we may encounter difficulties in
hiring and retaining employees because of concerns related to our financial performance. These circumstances may have a
negative effect on the market price of our common stock, and employees and prospective employees may factor in any
uncertainties relating to our stability and the value of any equity-based incentives in their decisions regarding employment
opportunities and decide to leave our employ or decline employment offers.
Moreover, our business is based in large part on unique and sophisticated technology. New employees require
substantial training, involving significant resources and management attention. Competition for experienced personnel in
our business can be intense. If we do not succeed in attracting new, qualified personnel or in integrating, retaining, and
motivating our current personnel, our growth and ability to deliver products and services that our customers require may be
hampered.
On February 26, 2025, we announced a reorganization, which could impact our workforce by up to 90 employees.
(10) We may acquire or invest in other companies or technologies in the future, which could divert management’s
attention, result in additional dilution to our shareholders, increase expenses, disrupt our operations and harm our
operating results.
We acquired EVRYTHNG in January 2022, and we may in the future acquire or invest in businesses, products or
technologies that we believe could complement or expand our current product and service offerings, enhance our technical
capabilities, expand our operations into new markets, or otherwise offer growth opportunities. The pursuit of potential
acquisitions or other strategic transactions may divert the attention of management and cause us to incur various expenses
related to identifying, investigating, and pursuing suitable acquisitions or strategic transactions, whether or not they are
completed.
There are inherent risks in integrating and managing acquisitions. We may not be able to assimilate or integrate the
acquired personnel, operations and technologies successfully or effectively manage the combined business following an
acquisition. We also may not achieve the anticipated benefits from an acquired business due to a number of factors,
including:
•
unanticipated costs or liabilities associated with the acquisition;
•
incurrence of acquisition-related costs;
•
inability to generate sufficient revenue to offset acquisition or investment costs;
•
the inability to maintain relationships with customers and partners of the acquired business;
•
the need to implement additional controls, procedures and policies;
•
entry into geographic markets in which we have little or no prior experience, and challenges caused by
distance, language, and cultural differences;
•
differences in foreign labor and employment laws, including classification of employees and contractors;
•
disruption of our ongoing business;
•
the potential loss of key employees; and
•
use of substantial portions of our available cash to complete the acquisition.
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Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could
adversely affect our financial position. In addition, if an acquired business fails to meet our expectations, our operating
results and business and financial condition may suffer.
(11) If our revenue models and pricing structures relating to products and services that are under development do not
gain market acceptance, the products and services may fail to attract or retain customers and we may not be able to
generate new revenue or sustain existing revenue.
Our revenues result from a combination of software subscriptions and software development services. We have not
fully developed our revenue models for some products in the commercial market. Because some of our products and
services are not yet well-established in the marketplace, and because some of these products and services will not directly
displace existing solutions, we cannot be certain that the pricing structure for these products and services will gain market
acceptance or be sustainable over time, or that the marketing for these products and services will be effective.
(12) An unfavorable assessment of digital watermarking technology by members of the HolyGrail 2.0 initiative could
discourage adoption of our technology.
In September 2020, AIM – European Brands Association, in conjunction with over 85 companies and organizations
including many of Europe’s largest consumer-packaged goods companies, launched the HolyGrail 2.0 initiative. The
purpose of the initiative is to assess whether digital watermarking technology can improve waste sorting and recycling rates
for product packaging in the European Union. Digimarc is a technology provider for this ongoing assessment.
An unfavorable assessment of digital watermarking technology generally, or of Digimarc’s digital watermarking
technology particularly, could cause its members to consider alternative technologies. This outcome could dissuade
HolyGrail 2.0 members and others following its lead from adopting digital watermarking technology for sortation and
recycling. This in turn could have a materially adverse effect on our ability to grow adoption of our Digimarc Recycle
product.
(13) The technological viability and economic attractiveness of competing technologies could cause the consumer-
packaged goods industry and related industries to adopt a technology other than digital watermarking to support its
waste sortation and recycling initiatives.
We have identified two technologies that could be perceived by industry participants to out-perform or be available
on more economically favorable terms than Digimarc’s digital watermarking technology for waste sortation and recycling:
chemical tracers and/or artificial intelligence. Industry leaders in a position to influence the industry at large could
determine that chemical tracers or artificial intelligence represent a more technologically viable and/or economically
attractive solution, including due to the greater number of potential suppliers, which in turn could increase pricing
competition and lower barriers to entry. Such a determination could result in the devaluation of digital watermarking
technology’s ability to support the product packaging lifecycle and negatively affect our revenue growth prospects.
RISKS RELATED TO INFORMATION SECURITY
(14) The security systems used in our business and our product and service offerings may be circumvented or
sabotaged by third parties, which could result in the disclosure of sensitive information or private personal
information or cause other business interruptions that could damage our reputation and disrupt our business.
Our business relies on computers and other information technologies, both internal and external. The protective
measures that we use may not prevent all security breaches, and failure to prevent security breaches may disrupt our
business, damage our reputation, or expose us to litigation and liability. A party who circumvents our security measures or
the security measures of our third-party vendors could misappropriate sensitive or proprietary information or materials or
cause interruptions or otherwise damage our products, services, and reputation, and the property of our customers. If
unintended parties obtain sensitive data and information or create bugs or viruses or otherwise sabotage the functionality of
our or our third-party vendor’s systems, we may receive negative publicity, incur liability to our customers, or lose the
confidence of our customers, any of which may cause the termination or modification of our contracts. Further, our
insurance coverage may be insufficient to cover losses and liabilities that may result from these events.
In addition, we may be required to expend significant capital and other resources to protect ourselves against the
threat of security breaches or to alleviate problems caused by these breaches. Any protection or remedial measures may not
be available at a reasonable price or at all or may not be entirely effective if commenced.
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(15) We may experience outages and disruptions of our infrastructure that may harm our business, prospects,
financial condition and results of operations.
We may be subject to outages or disruptions of our infrastructure, including information technology system failures
and network disruptions. We use third-party cloud service providers, which are also susceptible to outages and disruptions.
System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all
eventualities.
(16) Data breaches and cyber-attacks or cyber-fraud could compromise our intellectual property or other sensitive
information or result in losses.
We maintain sensitive data on our networks and the networks of our business partners and third-party providers,
including proprietary and confidential information relating to our intellectual property, personnel, and business, and that of
our customers and third-party providers. Companies have been increasingly subject to a wide variety of security incidents,
cyber-attacks, hacking, phishing, and other attempts to gain unauthorized access or engage in fraudulent behavior, resulting
in risks that could adversely impact our business, financial condition, and reputation. These risks include but are not limited
to:
•
our policies and security measures cannot guarantee security, and our information technology infrastructure,
including our networks and systems, may be vulnerable to data breaches, cyber-attacks, or fraud, leading to
the disclosure of sensitive customer information;
•
third parties may attempt to penetrate or infect our network and systems with malicious software and phishing
attacks in an effort to gain unauthorized access to our network and systems;
•
we may be subject to the risk of third parties falsifying invoices and similar fraud, frequently by obtaining
unauthorized access to our vendors’ and business partners’ networks;
•
other disruption of our operations due to cyberattacks or other malicious activities; and
•
failure to comply with cybersecurity regulations, resulting in legal and financial consequences.
In some circumstances, we may partner with third-party providers and provide them with sensitive data. If these third
parties fail to adopt or adhere to adequate data security practices, or in the event of a breach of their networks, this sensitive
data may be improperly accessed, used, or disclosed. These data breaches and any unauthorized access or disclosure of
sensitive data could compromise our intellectual property, expose sensitive business information, and subject us to liability.
The increase in cyber-attacks has resulted in an increased focus on cybersecurity by various government agencies.
Cyber-attacks or any investigation or enforcement action related to cybersecurity could cause us to incur significant
remediation costs, disrupt key business operations, and divert attention of management and key information technology
resources. We may incur losses as a result of cyber-fraud, such as making unauthorized payments, irrespective of robust
internal controls. Our reputation and business could be harmed, and we could be subject to third-party claims in the event of
such a security breach.
RISKS RELATED TO FINANCIAL REPORTING
(17) Changes to financial accounting standards may affect our results of operations and could cause us to change
our business practices.
We prepare our consolidated financial statements to conform to generally accepted accounting principles in the
United States (“U.S. GAAP”). These accounting principles are subject to interpretation by the Securities and Exchange
Commission (“SEC”) and various bodies formed to interpret and create accounting rules and regulations. Changes in these
rules, or guidance relating to interpretation and adoption of these rules, could have a significant effect on our financial
results and could affect portions of our business differently.
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(18) We were not profitable in 2024 or 2023 and may not be able to become profitable in the future, particularly if we
were to lose large contracts or fail in our new market development initiatives. Sustained lack of profitability could
cause us to incur asset impairment charges for long-lived assets or record valuation allowances against our deferred
tax assets.
We incurred net losses in 2024 and 2023 largely due to increased levels of investments in our business to support
product development and sales growth initiatives.
Becoming profitable in the future will depend upon a variety of factors, including our ability to maintain our current
customers and to acquire new commercial customers. Profitability will also depend on our efficiency in executing our
business strategy and capitalizing on new opportunities. Various adverse developments, including the loss of large contracts
or cost overruns on our existing contracts, could adversely affect our revenue, margins, and profitability. For example, we
expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial contract that
contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and contribute
$1.1 million of subscription revenue in 2025. Additionally, our subscription revenue in 2025 may also be impacted
negatively by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract
contributed $2.1 million of subscription revenue in 2024.
If we continue to incur operating losses, an impairment to the carrying value of our long-lived assets, including
goodwill, acquired intangible assets, patent assets and property and equipment could result. We test for impairment of our
long-lived assets when a triggering event occurs that would indicate that the carrying value may not be recoverable. Our
methodology for assessing impairment may require management to make judgments and assumptions regarding future cash
flows. Our projections of future cash flows are largely based on historical experience, and these projections may not be
achieved. Changes to these financial projections used in our impairment analysis could lead to an impairment of all or a
portion of our long-lived assets. Any such impairment charge could adversely affect our results of operations and our stock
price. We evaluated our long-lived assets for impairment as of December 31, 2024, and 2023 and concluded there was no
impairment for either period. We do not guarantee, however, that our long-lived assets will not become impaired in the
future.
We record valuation allowances on our deferred tax assets if, based on available evidence, it is more-likely-than-not
that all or some portion of the value of the assets will not be realized. The determination of whether our deferred tax assets
are realizable requires management to identify and weigh all available positive and negative evidence. Management
considers recent financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, tax
planning strategies and other evidence in assessing the realizability of our deferred tax assets. Adjustments to our deferred
tax assets could adversely affect our results of operations and our stock price. We have maintained a full valuation
allowance against our deferred tax assets largely due to the cumulative loss we have incurred over the previous three years,
which is considered a significant piece of negative evidence in assessing the realizability of deferred tax assets. As of
December 31, 2024, and 2023, we determined a valuation allowance was still appropriate given the cumulative loss. We
will not record tax benefits on any future losses until it is determined that those tax benefits will be realized.
(19) We may be adversely affected by variability of contracted arrangements.
We periodically agree to modify the terms of contractual arrangements with our customers, partners and licensees in
response to changes in circumstances underlying the original contractual arrangements, and it is likely that we will do so in
the future. As a result of this practice, the terms of our contractual arrangements with our customers, partners, and licensees
may vary over time and, depending on the particular modification, could have a material adverse effect on our financial
position, results of operations, or cash flows.
RISKS RELATED TO INTELLECTUAL PROPERTY AND LEGAL
(20) (a) We may not be able to adequately secure patent or other protection for our technologies.
Our business depends in part on securing protection for our proprietary technology. To protect our intellectual
property portfolio, we rely on a combination of patent, copyright, trademark and trade secret rights, confidentiality
procedures, and licensing arrangements. Although we regularly apply for patents to protect our intellectual property, there
is no guarantee that we will secure patent protection for any particular technology we develop.
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Changes in the U.S. and foreign patent laws, or in the interpretation of existing laws, may adversely affect our ability
to secure or enforce patents. For example, the U.S. Supreme Court issued a decision in 2014 limiting patent eligibility of
computer implemented inventions. The Leahy-Smith America Invents Act of 2011 (the “America Invents Act”) also
codifies several changes to the U.S. patent laws, including the creation of a post-grant inter partes review process to
challenge patents after they have issued. The America Invents Act allows third parties to petition the U.S. Patent and
Trademark Office to review and reconsider the patentability of any of our inventions claimed in our issued patents. Similar
laws and legal processes exist to challenge the validity of patents in other jurisdictions. Any such proceeding may result in
one or more of our patent claims becoming limited or being invalidated altogether. Additionally, certain foreign
jurisdictions may not recognize or enforce our patents in those jurisdictions. A limitation or invalidation of our patent
claims could adversely affect our financial position and our operating results.
Patents have finite lives, and our ability to continue to rely on our patents as a barrier to entry is limited to the term
of the patents. Our earliest patents began expiring in 2012, and the patents in our portfolio expire at various times between
2025 and 2039. The size and strength of our portfolio depends on the number of patents that have been granted, offset by
the number of patents that expire, in any given year.
As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees,
directors, consultants, and corporate partners, and attempt to control access to and distribution of our technology, solutions,
documentation, and other proprietary information. Despite these procedures, third parties could copy or otherwise obtain
and make unauthorized use of our technology, solutions or other proprietary information or independently develop similar
technologies, solutions, or information. The steps that we have taken to prevent misappropriation of our solutions,
technology or other proprietary information may not succeed.
We do not assure you that the protection of our proprietary rights will be adequate or that our competitors will not
independently develop similar technologies, duplicate our services, or design around any of our patents.
(b) We may be subject to infringement claims and other litigation, which could adversely affect our business.
As more companies engage in business activities relating to digital watermarking services, and develop
corresponding intellectual property rights, it is increasingly likely that claims may arise which assert that some of our
products or services infringe other parties’ intellectual property rights. These claims could subject us to costly litigation and
divert management resources. These claims may require us to pay significant damages, cease production of infringing
products, terminate our use of infringing technology, or develop non-infringing alternative technologies. In these
circumstances, continued use of our technology may require that we acquire licenses to the intellectual property that is the
subject of the alleged infringement, and we might not be able to obtain these licenses on commercially reasonable terms or
at all. Our use of protected technology may result in liability that threatens our continuing operation.
Some of our contracts include indemnity and similar provisions regarding our non-infringement of third-party
intellectual property rights. As deployment of our technology increases, and more companies enter our markets, the
likelihood of a third-party lawsuit resulting from these provisions increases. If an infringement arose in a context governed
by such a contract, we may have to expend significant sums to defend our customer, refund to our customer amounts
already paid to us, pay significant damages, or cease distributing our allegedly infringing products entirely.
(21) We are periodically involved in litigation in the ordinary course of business, and an adverse resolution of such
litigation may adversely affect our business, financial condition, results of operations, and cash flows.
From time to time, in our normal course of business, we are a party to various legal claims, actions and complaints.
Given the uncertain nature of litigation, we are not able to estimate the amount or range of gain or loss that could result
from an outcome of litigation. Litigation can be expensive, lengthy, and disruptive to normal business operations. The
results of complex legal proceedings are often uncertain and difficult to predict. We could incur costs in excess of any
established accruals and, to the extent available, excess liability insurance. An unfavorable outcome in any legal
proceedings could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
15
(22) The terms and conditions of our contracts could subject us to damages, losses and other expenses if we fail to
meet delivery and performance requirements.
Our service contracts typically include provisions imposing:
•
development and delivery schedules;
•
customer acceptance and testing requirements; and
•
other performance requirements.
To the extent these provisions involve performance over extended periods of time, risks of noncompliance may
increase. From time to time, we have experienced delays in system implementation, timely acceptance of deliverables,
concerns regarding deliverable performance, and other contractual disputes. If we fail to meet contractual performance
requirements as promised, or to successfully resolve customer disputes, we could incur liability for damages, as well as
increased costs, lower margins, or compensatory obligations in addition to other losses, such as harm to our reputation. Any
unexpected increases in costs to meet our contractual obligations or any other requirements necessary to address claims and
damages with regard to our customer contracts could have a material adverse effect on our business and financial results.
RISKS RELATED TO OUR CAPITAL STOCK
(23) Our corporate governance documents and Oregon law may delay or prevent an acquisition of us that
shareholders may consider favorable, which could decrease the value of your shares.
Our articles of incorporation, bylaws and Oregon law contain provisions that could make it more difficult for a third
party to acquire us without the consent of our Board of Directors. These provisions include supermajority voting
requirements for shareholders to amend our organizational documents and limitations on actions by our shareholders by
written consent. In addition, our Board of Directors has the right to issue preferred stock without shareholder approval,
which could be used to dilute the stock ownership of a potential hostile acquirer. Oregon law restricts the ability to vote
shares of stock acquired in a transaction that causes the acquiring person to control at least one-fifth, one-third or one-half
of the votes entitled to be cast in the election of directors (a “control share acquisition”). Shares acquired in a control share
acquisition have no voting rights except as authorized by a vote of the shareholders. Although we believe these provisions
protect our shareholders from coercive or otherwise unfair takeover tactics and thereby provide for an opportunity to
receive a higher bid by requiring potential acquirers to negotiate with our Board of Directors, these provisions apply even if
the offer may be considered beneficial by some shareholders.
(24) Our common stock price may be volatile, and you could lose all or part of your investment in shares of our
common stock.
The price of shares of our common stock may fluctuate as a result of changes in our operating performance or
prospects and other factors. Some specific factors that may have a significant effect on the price of shares of our common
stock include:
•
the public’s reaction to our public disclosures;
•
actual or anticipated changes in our operating results or future prospects;
•
strategic actions by us or our competitors, such as acquisitions or restructurings;
•
impact of acquisitions on our liquidity and financial performance;
•
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
•
changes in accounting standards, policies, guidance, interpretations or principles applicable to us;
•
conditions of the industry as a result of changes in financial markets or general economic or political
conditions;
16
•
the failure of securities analysts to cover our common stock in the future, or changes in financial estimates by
analysts;
•
changes in analyst recommendations or revenue and earnings estimates regarding us, other comparable
companies or the industry generally, and our ability to meet those estimates;
•
changes in the amount of dividends paid, if any;
•
changes in our financing strategy or capital structure;
•
future issuances of our common stock or the perception that future sales could occur; and
•
volatility in the equity securities market.
GENERAL RISK FACTORS
(25) If we are unable to respond to regulatory or industry standards effectively, or if we are unable to develop and
integrate new technologies effectively, our growth and the development of our products and services could be delayed
or limited.
Our future success will depend in part on our ability to enhance and improve the responsiveness, functionality, and
features of our products and services, and those of our business partners, in accordance with regulatory or industry
standards. Our ability to remain competitive will depend in part on our ability to comply with emerging industry and
governmental standards in a timely and cost-effective manner. If we are unable to meet these standards effectively, our
growth and the development of various products and services could be delayed or limited.
(26) We may need to hire additional employees or contract labor in the future in order to take advantage of new
business opportunities arising from increased demand, which could increase costs and impede our ability to achieve
or sustain profitability in the short term.
We have staffed our company with the intent of accelerating our product development and sales growth initiatives
while also focusing on achieving and sustaining profitability. Our current staffing levels could affect our ability to respond
to increased demand for our products and services. In addition, to meet any increased demand and take advantage of new
business opportunities in the future, we may need to increase our workforce through additional employees or contract labor.
Although we believe that increasing our workforce would potentially support anticipated growth and profitability, it would
increase our costs. If we experience such an increase in costs, we may not succeed in achieving or sustaining profitability in
the short term.
On February 26, 2025, we announced a reorganization, which could impact our workforce by up to 90
employees. This reorganization is intended to streamline our team structure to better align with our long-term growth
initiatives and profitability objectives. If we do not fully realize or maintain the anticipated benefits of the reorganization
and related cost reduction initiatives, our business, financial condition, or results of operations could be adversely affected,
and additional reorganization actions and cost reduction initiatives may be necessary. Our reorganization and cost cutting
activities may also yield unintended consequences and costs, such as attrition beyond our intended reorganization, a
reduction in morale among our remaining employees, and the risk we may not achieve the anticipated benefits of the
reorganization, all of which may have an adverse effect on our results of operations or financial condition.
(27) Products deploying our technology could have unknown defects or errors, which may give rise to claims against
us, divert application of our resources from other purposes or increase our project implementation and support costs.
Products and services as complex as ours may contain undetected defects or errors. Furthermore, we often provide
complex implementation, integration, customization, consulting, and other technical services in connection with the
implementation and ongoing maintenance of our products. Despite testing, defects or errors in our products and services
may occur, which could result in delays in the development and implementation of our products, inability to meet customer
requirements or expectations in a timely manner, loss of revenue or market share, increased implementation and support
costs, failure to achieve market acceptance, diversion of development resources, injury to our reputation, increased
insurance costs, increased service and warranty costs, and warranty or breach of contract claims. Although we attempt to
reduce the risk of losses resulting from warranty or breach of contract claims through warranty disclaimers and liability
limitation clauses in our agreements when we can, these contractual provisions are sometimes rejected or limited and may
17
not be enforceable in every instance. If a court refuses to enforce the liability limiting provisions of our contracts for any
reason, or if liabilities arise that were not contractually limited or adequately covered by insurance, the expense associated
with defending these actions or paying the resultant claims could be significant.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 1C: CYBERSECURITY
Cybersecurity risk management is a critical component of our overall risk management program. We have
implemented robust information security processes for assessing, identifying, and managing material risks from
cybersecurity breaches that could adversely affect our business, financial condition and reputation. Although we have
implemented measures to safeguard against cybersecurity risks, there is no assurance that these measures will prevent all
incidents or fully mitigate their impact. We continuously work to enhance our information security processes and risk
management program. Our cybersecurity risk management program is led by our Senior Director of Information Security
(“InfoSec”) with direction and oversight from the Company’s executive management team. The Senior Director of
InfoSec and the Company’s executive leaders directly involved have extensive experience in information security, risk
management, and technology, and a track record of successful leadership in areas relevant to cybersecurity.
On a regular basis, we conduct thorough cybersecurity risk assessments that encompass both financial and non-
financial risks, to identify vulnerabilities within our information systems. We also engage third-party experts and
consultants to assist with cybersecurity risk assessments and to perform black box and white box penetration testing. We
have implemented continuous enterprise-wide monitoring tools to detect and assess cybersecurity threats. In addition, we
maintain and practice our incident response plans to facilitate timely identification and reporting of cybersecurity events.
Aligned with our broader risk management framework, our materiality assessment criteria are determined based on a
comprehensive review of potential cybersecurity impacts on our operations, financials and reputation. Our risk mitigation
strategies include a broad variety of technical and operational measures, including, but not limited to, cross-functional
collaboration among the information security, legal and risk management and operational teams, and Company-wide
training on cybersecurity and privacy. We conduct regular and ongoing information security training and maintain a
compliance program, which includes live and virtual training and periodic testing to ensure compliance with corporate
standards and procedures. New employees must acknowledge that they have completed all the information security training
and adhere to standards and procedures upon hire. All other employees acknowledge completion of this training annually.
In 2024, the Company again achieved System and Organization SOC Type II (“SOC 2”) compliance for its product
digitization platform. An independent auditor provided this certification after conducting a comprehensive audit,
confirming that from February 16, 2023, to February 29, 2024, our information security controls were well-designed and
worked effectively. The Company is working diligently to continue to maintain compliance with SOC 2 with the audit for
2025 currently in process.
Our Board of Directors plays a vital role in overseeing the Company’s enterprise risk management program and has
delegated cybersecurity risk management to the Audit Committee of the Board of Directors. The Audit Committee is
responsible for ensuring that management has processes in place designed to identify and evaluate cybersecurity risks to
which the Company is exposed, and to implement processes to manage cybersecurity risks and mitigate cybersecurity
incidents. Our Senior Director of InfoSec provides annual updates to the Audit Committee on the current cybersecurity
threat landscape, emerging risks, remediation plans, and the effectiveness of related internal controls, and our Chief
Financial Officer provides quarterly updates to the Audit Committee regarding progress on the Company’s cybersecurity
program. When applicable, additional cybersecurity updates are provided to our Audit Committee in interim periods in the
event of a significant cybersecurity threat. All members of the Board of Directors are invited to attend these meetings.
The Audit Committee regularly engages in risk assessments specifically focused on cybersecurity, considering
potential impacts on operations, financial results, and reputation, and periodically reviews cybersecurity policies and
procedures to ensure they align with best practices and evolving cyber threats. In addition, the Audit Committee participates
in the allocation of resources for cybersecurity initiatives, ensuring that investments align with the Company’s risk appetite
and strategic objectives. The Audit Committee is also briefed on the Company’s crisis management and incident response
plans, ensuring preparedness for potential cybersecurity incidents. The full Board of Directors participates with
management in security tabletop exercises to test our incident response plans.
18
In 2024, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to
materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot
eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced undetected cybersecurity
incidents. For additional information about these risks, see Part I, Item 1A, “Risk Factors” in this Annual Report on Form
10-K.
ITEM 2: PROPERTIES
In February 2022, we entered into a sublease agreement and lease extension agreement on a new facility in
Beaverton, Oregon in order to move our corporate headquarters. The new facility is approximately 65,500 square feet in
size. The term of the sublease and lease extension runs through September 2030. The remaining rent payments as
of December 31, 2024 were $7.8 million plus operating expenses, payable in monthly installments. The first 26 months of
rent payments and operating expenses were abated to cover the remaining term of the lease on our former corporate
headquarters.
The lease term of the Company’s former corporate headquarters in Beaverton, Oregon ended in March 2024, with no
remaining rent payments as of December 31, 2024. The Company stopped using this office space as its corporate
headquarters in March 2022.
We believe that our existing office space is suitable and adequate for our current and foreseeable future needs.
ITEM 3: LEGAL PROCEEDINGS
We are subject from time to time to legal proceedings and claims arising in the ordinary course of business. At this
time, we do not believe that the resolution of any such matters will have a material adverse effect on our financial position,
results of operations or cash flows.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
19
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading on the Nasdaq Stock Market LLC in October 2008 under the symbol “DMRC.”
As of February 21, 2025, we had 157 shareholders of record of our common stock, as shown in the records of our
transfer agent. Since many holders hold shares in “street name,” we believe that there is a significantly larger number of
beneficial owners of our common stock than the number of shareholders of record.
We withhold (purchase) shares of common stock in connection with the vesting of restricted shares, restricted stock
units, and performance restricted stock units, to satisfy required tax withholding obligations.
The following table sets forth information regarding purchases of our equity securities during the three-month period
ended December 31, 2024:
(c)
Total number
of shares
(d)
Approximate
purchased as
dollar value
part of
of shares that
(a)
(b)
publicly
may yet be
Total number Average price announced
purchased
of shares
paid per
plans
under the plans
Period
purchased (1)
share (1)
or programs or programs
Month 1
October 1, 2024 to October 31, 2024 ............
— $
—
— $
—
Month 2
November 1, 2024 to November 30, 2024 ....
19,757 $
27.18
— $
—
Month 3
December 1, 2024 to December 31, 2024 .....
— $
—
— $
—
Total .....................................................................
19,757 $
27.18
— $
—
(1) Fully vested shares of common stock withheld (purchased) by us in satisfaction of required withholding tax liability
upon the vesting of restricted stock awards, restricted stock units, and performance restricted stock units.
20
ITEM 7:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements relating to future events or the future financial performance of Digimarc, which involve risks
and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements.
Please see the discussion regarding forward-looking statements included at the end of this discussion, under the caption
“Forward-Looking Statements,” and Item 1A, “Risk Factors” for a discussion of some of the uncertainties, risks and
assumptions associated with these statements.
The following discussion should be read in conjunction with our consolidated financial statements and the related
notes and other financial information appearing elsewhere in this Annual Report on Form 10-K.
All dollar amounts in the following tables are in thousands except per share amounts or unless otherwise noted. The
percentages within the tables included in this section may not sum to 100% due to rounding.
Overview
Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly
30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon
one or both of the following two things: the identification and the authentication of physical and digital items, often at
massive scale, and often where other methods of identification or authentication don’t work well or don’t work at all.
The Digimarc Illuminate platform is a distinctive software as a service (“SaaS”) cloud-based platform for digital
connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response
(“QR”) codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a
centralized platform for capturing insights about digital interactions and automating activities based on that information.
The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable
ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust
and connectivity. All of the Company’s products are complementary to each other, providing exponential benefits when
combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc’s products
provide many benefits including:
•
Digimarc Automate improves product inspection by embedding imperceptible digital watermarks into
products, labels, and packaging, which are detectable by standard vision systems. This significantly reduces
mixing errors and mislabeling, ensuring higher accuracy and efficiency in production, fulfillment, and
distribution facilities without additional costs for special inks or hardware. By enabling real-time data analysis
and minimizing human error, Digimarc Automate enhances quality assurance, reduces waste, and lowers the
risk of product recalls, giving brands a competitive edge.
•
Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned
communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant
QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences
(including personalized and automated loyalty and rewards programs) based on a variety of factors such as
time and location or previous behavior. Connecting engagements across the physical and digital worlds in a
singular view results in powerful new capabilities and insights for brands.
•
Digimarc Recycle increases the quality and quantity of recycled materials by digitizing products and
packaging with digital watermarking technology. Coupled with consumer engagement capabilities, brands
can leverage a direct, digital communications channel. Plus, Digimarc Recycle creates a cloud-based record
of never-before-seen post-consumption data to provide new insights that benefit stakeholders across the value
chain, including brands, facility operators, and Producer Responsibility Organizations (“PROs”).
•
Digimarc Retail Experience delivers smarter, connected packaging that supports next-generation retail
checkout systems, including checkout efficiency (faster scanning) and checkout effectiveness (reduced
shrinkage including gift card and price look-up fraud prevention), optimized operational processes, advanced
consumer engagement experiences, compliance with upcoming industry standards, and the collection of
powerful first-party data and consumer insights.
21
•
Digimarc Validate supports authentication in the physical and digital worlds to help ensure online
interactions can be trusted and that real products and digital assets are genuine and in the right place.
Digimarc’s technology protects digital images, audio, product packaging, gift cards, and other physical items
by delivering exclusive, covert digital watermarks and/or dynamic QR codes and a cloud-based record of
product authentication information. In addition, consumer engagement capabilities provide a direct, digital
communications channel.
Digimarc has maintained a relationship with the Central Banks for nearly 30 years, providing trusted technology to
help deter digital counterfeiting of currency. This relationship was the first commercially successful large-scale use of our
technologies and protects billions of banknotes in circulation globally.
Our intellectual property contains many innovations in digital watermarking, content and object recognition,
product authentication, and related fields. To protect our inventions, we have implemented an extensive intellectual
property protection program that relies on a combination of patent, copyright, trademark and trade secret laws, and
nondisclosure agreements and other contracts. As a result, we believe we have one of the world’s most extensive patent
portfolios in digital watermarking and related fields, with approximately 820 U.S. and foreign patents granted and
applications pending as of December 31, 2024. The patents in our portfolio each have a life of approximately 20 years from
the patent’s effective filing date.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, contingencies, goodwill,
income taxes, intangible assets, marketable securities, property and equipment and revenue recognition. We base our
estimates on historical experience and on other assumptions we believe to be reasonable in the circumstances. Actual
results may differ from these estimates under different assumptions and/or conditions.
Some of our accounting policies require higher degrees of judgment than others in their application. We believe the
following critical accounting policies affect our more significant judgments and estimates used in the preparation of our
consolidated financial statements.
Revenue recognition:
Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606 “Revenue from
Contracts with Customers” by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligation(s) in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligation(s) in the contract.
Step 5: Recognize when (or as) the entity satisfies the performance obligation(s).
We derive our revenue primarily from software subscriptions and software development services. Applicable
revenue recognition criteria are considered separately for each performance obligation as follows:
•
Subscription revenue consists primarily of revenue earned from subscription fees for access to our SaaS
platform and products, and, to a lesser extent, licensing fees for our software products. The majority of
subscription contracts are recurring, paid in advance and recognized over the term of the subscription, which
is typically one to three years.
•
Service revenue consists primarily of revenue earned from the performance of software development services
and, to a lesser extent, professional services. The majority of software development contracts are structured as
time and materials consulting agreements. Revenue for services is generally recognized as the services are
performed. Billing for services rendered generally occurs within one month after the services are provided.
22
Customer arrangements may contain multiple deliverables such as software platform subscriptions, software product
subscriptions, and professional services. The subscriptions and services we offer are usually distinct performance
obligations. When they are not capable of being distinct, they are combined with other subscriptions or services until a
distinct performance obligation is identified. To determine the transaction price, we consider the terms of the contract and
our customary business practices. Some contracts may contain variable consideration. In those cases, we estimate the
amount of variable consideration based on the sum of probability-weighted amounts in a range of possible consideration
amounts. As part of this assessment, we will evaluate whether any of the variable consideration is constrained and if it is,
we will not include it in the transaction price. The consideration is allocated between distinct performance obligations based
on their stand-alone selling prices. When the standalone selling prices are not directly observable, we make estimates based
on reasonably available information, including market conditions, specific factors affecting us, and information about the
customer. We recognize the revenue associated with each performance obligation as we fulfil the obligation, which for
subscriptions is typically recognized ratably over time and for services is typically recognized when they are performed.
All revenue recognized in the Consolidated Statements of Operations is considered to be revenue from contracts with
customers.
Results of Operations—the Years Ended December 31, 2024 and December 31, 2023
The following tables present our consolidated statements of operations data for the periods indicated.
Year Ended December 31,
2024
2023
Revenue:
Subscription ................................................................................................... $
22,418 $
18,973
Service ............................................................................................................
16,000
15,878
Total revenue ..........................................................................................
38,418
34,851
Cost of revenue:
Subscription (1) ...............................................................................................
2,959
2,975
Service (1) ........................................................................................................
6,628
7,252
Amortization expense on acquired intangible assets ......................................
4,592
4,459
Total cost of revenue ...............................................................................
14,179
14,686
Gross profit ............................................................................................................
24,239
20,165
Operating expenses:
Sales and marketing .......................................................................................
21,167
22,409
Research, development and engineering ........................................................
26,209
26,577
General and administrative ............................................................................
17,073
18,071
Amortization expense on acquired intangible assets ......................................
1,097
1,065
Impairment of lease right of use assets and leasehold improvements ............
—
250
Total operating expenses .........................................................................
65,546
68,372
Operating loss ........................................................................................................
(41,307)
(48,207)
Other income, net ..................................................................................................
2,341
2,452
Loss before income taxes ......................................................................................
(38,966)
(45,755)
Provision for income taxes ....................................................................................
(44 )
(204 )
Net loss ................................................................................................... $
(39,010) $
(45,959)
23
Year Ended December 31,
2024
2023
Percentages are percent of total revenue
Revenue:
Subscription ..................................................................................................
58%
54%
Service ...........................................................................................................
42%
46%
Total revenue .........................................................................................
100%
100%
Cost of revenue:
Subscription (1) ..............................................................................................
8%
9%
Service (1) .......................................................................................................
17%
21%
Amortization expense on acquired intangible assets .....................................
12%
13%
Total cost of revenue ..............................................................................
37%
42%
Gross profit ...........................................................................................................
63%
58%
Operating expenses:
Sales and marketing ......................................................................................
55%
64%
Research, development and engineering .......................................................
68%
76%
General and administrative ...........................................................................
44%
52%
Amortization expense on acquired intangible assets .....................................
3%
3%
Impairment of lease right of use assets and leasehold improvements ...........
—%
1%
Total operating expenses ........................................................................
171%
196%
Operating loss .......................................................................................................
(108)%
(138)%
Other income, net .................................................................................................
6%
7%
Loss before income taxes .....................................................................................
(101)%
(131)%
Provision for income taxes ...................................................................................
(— )%
(1 )%
Net loss ..................................................................................................
(102)%
(132)%
(1) Cost of revenue for Subscription and Service excludes Amortization expense on acquired intangible assets
Summary
Total revenue for the twelve months ended December 31, 2024, increased $3.6 million, or 10%, to $38.4 million,
compared to $34.9 million for the corresponding twelve months ended December 31, 2023, primarily due to $3.4 million of
higher subscription revenue, which includes higher subscription revenue from new and existing commercial contracts,
partially offset by the expiration of a commercial contract in June 2024.
We expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial
contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and
contribute $1.1 million of subscription revenue in 2025. Our subscription revenue in 2025 may also be impacted negatively
by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1
million of subscription revenue in 2024. We expect government service revenue in 2025 to be $1.7 million to $2.0 million
lower than 2024 due to a smaller approved budget for program work in 2025.
Total operating expenses for the twelve months ended December 31, 2024, decreased $2.8 million, or 4%,
to $65.5 million, compared to $68.4 million for the corresponding twelve months ended December 31, 2023, primarily due
to 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. The $1.5 million decrease in cash compensation costs includes $1.5
million of cash severance costs in 2023, and lower cash compensation costs of $1.0 million primarily reflecting lower
headcount, net of annual compensation adjustments, partially offset by $0.6 million of cash severance costs in 2024 and
$0.5 million of lower cash labor costs allocated to cost of revenue due to the amount and mix of billable labor hours
incurred.
We expect our expenses in 2025 to be significantly lower than 2024 due to the reorganization we announced on
February 26, 2025. The reorganization is expected to reduce our cash expenses by approximately $16.5 million on an
annualized basis. We have also identified approximately $5.5 million of other annualized cash cost savings. We expect to
incur approximately $3.0 million in one-time reorganization costs in the first quarter of 2025.
24
Revenue
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Revenue:
Subscription ........................................................ $ 22,418 $ 18,973 $
3,445
18%
Service ................................................................. 16,000 15,878
122
1%
Total ............................................................. $ 38,418 $ 34,851 $
3,567
10%
Revenue (as % of total revenue):
Subscription ........................................................
58%
54%
Service .................................................................
42%
46%
Total .............................................................
100%
100%
Subscription. Subscription revenue consists primarily of revenue earned from subscription fees for access to our
SaaS platform and products and, to a lesser extent, licensing fees for our software products. The majority of subscription
contracts are recurring, paid in advance and recognized over the term of the subscription, which is typically one to three
years.
The $3.4 million increase in subscription revenue for the twelve months ended December 31, 2024, compared to the
corresponding twelve months ended December 31, 2023, was primarily due to higher subscription revenue from new and
existing commercial contracts, partially offset by the expiration of a commercial contract in June 2024.
Service. Service revenue consists primarily of revenue earned from the performance of software development
services and, to a lesser extent, professional services. The majority of software development contracts are structured as time
and materials agreements. Revenue for services is generally recognized as the services are performed. Billing for services
rendered generally occurs within one month after the services are provided. Service contracts can range from days to
several years in length. Our contract with the Central Banks, which accounts for the majority of our service revenue, has a
contract term through December 31, 2029. The contract is subject to work plans that are reviewed and agreed upon
quarterly. The contract provides for predetermined billing rates, which are adjusted annually to account for cost of living
variables, and provides for the reimbursement of third party costs incurred to support the work plans.
The $0.1 million increase in service revenue for the twelve months ended December 31, 2024, compared to the
corresponding twelve months ended December 31, 2023, was primarily due to $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.
Revenue by geography
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Revenue by geography:
Domestic ........................................................... $ 10,195 $ 11,380 $
(1,185)
(10)%
International ...................................................... 28,223 23,471
4,752
20%
Total ........................................................... $ 38,418 $ 34,851 $
3,567
10%
Revenue (as % of total revenue):
Domestic ...........................................................
27%
33%
International ......................................................
73%
67%
Total ...........................................................
100%
100%
Domestic. The $1.2 million decrease in domestic revenue for the twelve months ended December 31, 2024,
compared to the corresponding twelve months ended December 31, 2023, was primarily due to $1.2 million of lower
subscription revenue, which includes the impact of the expiration of a commercial contract in June 2024 with a domestic
customer, partially offset by higher subscription revenue from new and existing commercial contracts with domestic
customers.
25
International. The $4.8 million increase in international revenue for the twelve months ended December 31, 2024,
compared to the corresponding twelve months ended December 31, 2023, was primarily due to $4.6 million of higher
subscription revenue from new and existing commercial contracts with international customers.
Revenue by market
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Commercial:
Subscription ...................................................... $ 21,218 $ 17,773 $
3,445
19%
Service ............................................................... 1,308 1,042
266
26%
Total Commercial ...................................... $ 22,526 $ 18,815 $
3,711
20%
Government:
Subscription ...................................................... $ 1,200 $ 1,200 $
—
—%
Service ............................................................... 14,692 14,836
(144)
(1)%
Total Government ...................................... $ 15,892 $ 16,036 $
(144)
(1)%
Total ........................................................... $ 38,418 $ 34,851 $
3,567
10%
Revenue (as % of total revenue):
Commercial .......................................................
59%
54%
Government .......................................................
41%
46%
Total ...........................................................
100%
100%
Commercial. The $3.7 million increase in commercial revenue for the twelve months ended December 31, 2024,
compared to the corresponding twelve months ended December 31, 2023, was primarily due to $3.4 million of higher
commercial subscription revenue, which includes higher revenue from new and existing commercial contracts, partially
offset by the expiration of a commercial contract in June 2024, and $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.
Government. The $0.1 million decrease in government revenue for twelve months ended December 31, 2024,
compared to the corresponding twelve months ended December 31, 2023, was primarily due to lower program work with
the Central Banks.
Annual Recurring Revenue (“ARR”)
As of
As of
Dollar
Percent
December 31, December 31,
Increase
Increase
2024
2023
(Decrease)
(Decrease)
ARR ...................................................... $
19,964 $
22,251 $
(2,287)
(10)%
ARR decreased $2.3 million, or 10%, from December 31, 2023 to December 31, 2024, primarily reflecting
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.
We provide an ARR performance metric to help investors better understand and assess the performance of our
business because our mix of revenue generated from recurring sources has increased in recent years. ARR is calculated as
the aggregation of annualized subscription fees from all of our commercial contracts as of the measurement date. ARR does
not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by
other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined
with, or to replace, either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used
in calculating ARR may or may not be extended or renewed by our customers.
26
Cost of revenue
Subscription. Cost of subscription revenue primarily includes:
•
internet cloud hosting costs and image search data fees to support our software subscriptions; and
•
amortization of capitalized patent costs and patent maintenance fees.
Service. Cost of service revenue primarily includes:
•
compensation, benefits, incentive compensation in the form of cash and stock-based compensation and related
costs of our software developers, quality assurance personnel, professional services team and other personnel
where we bill our customers for time and materials costs;
•
payments to outside contractors that are billed to customers;
•
charges for equipment and software directly used by customers;
•
depreciation for equipment and software directly used by customers; and
•
travel costs that are billed to customers.
Amortization expense on acquired intangible assets. Amortization expense includes:
•
amortization expense recognized on the developed technology intangible asset acquired in the EVRYTHNG
acquisition.
Gross profit
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Gross Profit:
Subscription (1) .................................................. $ 19,459 $ 15,998 $
3,461
22%
Service (1) ........................................................... 9,372 8,626
746
9%
Amortization expense on acquired intangible
assets .............................................................. (4,592) (4,459)
(133)
(3)%
Total ........................................................... $ 24,239 $ 20,165 $
4,074
20%
Gross Profit Margin:
Subscription (1) ..................................................
87%
84%
Service (1) ...........................................................
59%
54%
Total ...........................................................
63%
58%
(1) Gross Profit and Gross Profit Margin for Subscription and Service excludes amortization expense on acquired
intangible assets.
The $4.1 million increase in total gross profit for the twelve months ended December 31, 2024, compared to the
corresponding twelve months ended December 31, 2023, was primarily due to $3.4 million of higher subscription revenue
and $0.6 million of lower cost of service revenue.
The increase in subscription gross profit margin, excluding amortization expense on acquired intangible assets, for
the twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023,
was primarily due to higher subscription revenue combined with a more favorable mix of subscription revenue.
The increase in service gross profit margin, excluding amortization expense on acquired intangible assets, for the
twelve months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was
primarily due to a more favorable mix of service revenue.
27
Operating expenses
Sales and marketing
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Sales and marketing ................................................. $ 21,167 $ 22,409 $
(1,242)
(6)%
Sales and marketing (as % of total revenue) ............
55%
64%
Sales and marketing expenses consist primarily of:
•
compensation, benefits, incentive compensation in the form of cash and stock-based compensation and related
costs of our sales, marketing, product, operations and customer support personnel;
•
travel and market research costs, and costs associated with marketing programs, such as trade shows, public
relations and new product launches;
•
professional services, consulting and outside contractor costs for sales and marketing and product initiatives;
and
•
the allocation of facilities and information technology costs.
The $1.2 million decrease in sales and marketing expenses for the twelve months ended December 31, 2024,
compared to the corresponding twelve months ended December 31, 2023, was primarily due to:
•
lower cash compensation costs of $0.9 million, primarily reflecting lower headcount, net of annual
compensation adjustments;
•
cash severance costs of $0.6 million in 2023; and
•
lower professional services and consulting costs of $0.5 million; partially offset by
•
cash severance costs of $0.6 million in 2024; and
•
lower cash labor costs allocated to cost of revenue of $0.4 million due to the amount and mix of billable labor
hours incurred.
Research, development and engineering
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Research, development and engineering .................. $ 26,209 $ 26,577 $
(368)
(1)%
Research, development and engineering (as % of
total revenue) ........................................................
68%
76%
Research, development and engineering expenses arise primarily from three areas that support our business model:
fundamental research, platform development and product development.
Research, development and engineering expenses consist primarily of:
•
compensation, benefits, incentive compensation in the form of cash and stock-based compensation and related
costs of our software and hardware developers and quality assurance personnel;
•
payments to outside contractors for software development services;
•
the purchase of materials and services for platform and product development; and
•
the allocation of facilities and information technology costs.
28
The $0.4 million decrease in research, development and engineering expenses for the twelve months ended
December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily due to:
•
cash severance costs of $0.8 million in 2023; and
•
lower stock compensation costs of $0.4 million; partially offset by
•
higher professional services and consulting costs of $0.5 million; and
•
higher cash compensation costs of $0.2, primarily reflecting annual compensation adjustments, net of lower
headcount.
General and administrative
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
General and administrative ......................................... $17,073 $18,071 $
(998)
(6 )%
General and administrative (as % of total revenue)....
44%
52%
We incur general and administrative costs in the functional areas of finance, legal, human resources, intellectual
property, executive, and board of directors. Costs for facilities and information technology are also managed as part of the
general and administrative processes and are allocated to this area as well as each of the areas in sales and marketing and
research, development and engineering, based on relative headcount.
General and administrative expenses consist primarily of:
•
compensation, benefits and incentive compensation in the form of cash and stock-based compensation and
related costs of our general and administrative personnel;
•
third party and professional fees associated with legal, accounting and human resources functions;
•
costs associated with being a public company;
•
third party costs, including filing and governmental regulatory fees and outside legal fees and translation
costs, related to the filing and maintenance of our intellectual property; and
•
the allocation of facilities and information technology costs.
The $1.0 million decrease in general and administrative expenses for the twelve months ended December 31, 2024,
compared to the twelve months ended December 31, 2023, was primarily due to:
•
lower cash compensation costs of $0.4 million, primarily reflecting lower headcount, net of annual
compensation adjustments;
•
lower stock compensation costs of $0.4 million;
•
lower depreciation and amortization costs of $0.3 million; and
•
lower other costs of $0.3 million, primarily reflecting lower accounting and tax costs; partially offset by
•
higher professional services and consulting costs of $0.4 million.
29
Amortization expense on acquired intangible assets
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Amortization expense on acquired intangible assets ..... $ 1,097 $ 1,065 $
32
3%
Amortization expense on acquired intangible assets
(as % of total revenue) ...............................................
3%
3%
Amortization expense on acquired intangible assets relates to amortization expense recognized on the customer
relationships intangible asset acquired in the EVRYTHNG acquisition.
The increase in amortization expense on acquired intangible assets was primarily due to the impact of changes in
foreign currency exchange rates.
Impairment of lease right of use assets and leasehold improvements
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Impairment of lease right of use assets and leasehold
improvements ............................................................. $
— $ 250 $
(250)
(100 )%
Impairment of lease right of use assets and leasehold
improvements (as % of total revenue) ........................
—%
1%
The $0.3 million decrease in impairment of lease right of use assets and leasehold improvements for the twelve
months ended December 31, 2024, compared to the corresponding twelve months ended December 31, 2023, was primarily
due to an impairment charge recorded in 2023 on our former corporate headquarters in Beaverton, Oregon. The lease on our
former corporate headquarters expired on March 31, 2024.
Stock-based compensation
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Cost of revenue ............................................................. $
706 $ 1,126 $
(420)
(37)%
Sales and marketing ...................................................... 2,788 2,640
148
6%
Research, development and engineering ....................... 2,522 2,962
(440)
(15)%
General and administrative ............................................ 4,013 4,430
(417)
(9)%
Total stock-based compensation ............................ $ 10,029 $ 11,158 $
(1,129)
(10)%
The $1.1 million decrease in stock-based compensation expense for the twelve months ended December 31, 2024,
compared to the corresponding twelve months ended December 31, 2023, was primarily due to:
•
stock-based severance costs of $0.6 million incurred in 2023;
•
reversal of stock compensation expenses of $0.4 million on unvested stock awards that were forfeited in
2024; and
•
lower amount of employee equity grants made in 2024 resulting in lower expense of $0.3 million.
We anticipate incurring an additional $16.2 million in stock-based compensation expense through December 31,
2028 for awards outstanding as of December 31, 2024.
30
Leases
In February 2022, we entered into a sublease agreement and lease extension agreement for office space in Beaverton,
Oregon in order to move our corporate headquarters. The new facility is approximately 65,500 square feet in size. The term
of the sublease and lease extension runs through September 2030. The remaining rent payments as of December 31, 2024
were $7.8 million plus operating expenses, payable in monthly installments. The first 26 months of rent payments and
operating expenses were abated to cover the remaining term of the lease on our former corporate headquarters.
The lease term of our former corporate headquarters in Beaverton, Oregon ended in March 2024, with no remaining
rent payments as of December 31, 2024. The Company stopped using this office space as its corporate headquarters in
March 2022.
Other income, net
Year Ended
December 31,
Dollar
Percent
2024 2023 Increase/(Decrease) Increase/(Decrease)
Other income, net ......................................................... $ 2,341 $ 2,452 $
(111)
(5)%
Other income, net (as % of total revenue) ....................
6%
7%
The $0.1 million decrease in other income, net for the twelve months ended December 31, 2024, compared to the
corresponding twelve months ended December 31, 2023, was primarily due to $0.1 million of lower refundable research
and development tax credits, and $0.1 million of foreign currency losses, partially offset by $0.1 million of higher interest
income on our marketable securities.
Provision for income taxes
The provision for income taxes reflects current taxes and deferred taxes.
For the year ended December 31, 2024, our effective tax rate was 0%, reflecting a valuation allowance recorded
against our deferred tax assets. The valuation allowance against deferred tax assets as of December 31, 2024 was
$104.4 million, an increase of $9.1 million from $95.3 million as of December 31, 2023. We continually assess the
applicability of a valuation allowance against our deferred tax assets. Based upon the positive and negative evidence
available as of December 31, 2024, and largely due to the cumulative loss incurred by us over the preceding three years,
which is considered a significant piece of negative evidence when assessing the realizability of deferred tax assets, a
valuation allowance is recorded against our deferred tax assets. We will not record tax benefits on any future losses until it
is determined that those tax benefits will be realized. All future reversals of the valuation allowance would result in a tax
benefit in the period recognized.
For the year ended December 31, 2023, our effective tax rate was 0%, reflecting a valuation allowance recorded
against our deferred tax assets. The valuation allowance against deferred tax assets as of December 31, 2023, was $95.3
million, an increase of $12.3 million from $83.0 million as of December 31, 2022.
Non-GAAP Financial Measures
The following discussion and analysis includes both financial measures in accordance with U.S. GAAP (“GAAP”)
as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a
company’s performance, financial position or cash flows that excludes amounts that are not normally excluded in the most
directly comparable measure calculated and presented 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. Investors should not consider non-GAAP financial measures in isolation or as
substitutes for performance measures calculated in accordance with GAAP. Our management uses and relies on Non-
GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP
loss per share (diluted), which are all non-GAAP financial measures. We believe that both management and shareholders
benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods.
31
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. Our management recognizes that the non-GAAP
financial measures have inherent limitations because of the described excluded items.
We define Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP
net loss, and Non-GAAP loss per share (diluted) excluding the adjustments in the table below. 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 can affect comparability.
We have included a reconciliation of our financial measures calculated in accordance with GAAP to the most
comparable non-GAAP financial measures. We believe that providing the non-GAAP financial measures, together with the
reconciliation to GAAP, helps 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 definitions being used and to the reconciliation between
such measures and the corresponding GAAP measures provided by each company under applicable SEC rules.
The following table presents a reconciliation of Non-GAAP gross profit, Non-GAAP gross profit margin, Non-
GAAP operating expenses, Non-GAAP net loss, and Non-GAAP loss per share (diluted) for the years ended December 31,
2024 and 2023:
Year Ended December 31,
2024
2023
GAAP gross profit ................................................................................................ $
24,239 $
20,165
Amortization of acquired intangible assets ...................................................
4,592
4,459
Amortization and write-off of other intangible assets ...................................
544
573
Stock-based compensation ............................................................................
706
1,126
Non-GAAP gross profit ......................................................................... $
30,081 $
26,323
Non-GAAP gross profit margin .............................................................
78 %
76 %
GAAP operating expenses.................................................................................... $
65,546 $
68,372
Depreciation and write-off of property and equipment .................................
(728 )
(1,121 )
Amortization of acquired intangible assets ...................................................
(1,097 )
(1,065 )
Amortization and write-off of other intangible assets ...................................
(276 )
(393 )
Amortization of lease right of use assets under operating leases ..................
(358 )
(517 )
Stock-based compensation ............................................................................
(9,323 )
(10,032)
Impairment of lease right of use assets and leasehold improvements ...........
—
(250)
Non-GAAP operating expenses ............................................................. $
53,764 $
54,994
GAAP net loss ...................................................................................................... $
(39,010 ) $
(45,959)
Total adjustments to gross profit ...................................................................
5,842
6,158
Total adjustments to operating expenses .......................................................
11,782
13,378
Non-GAAP net loss ............................................................................... $
(21,386 ) $
(26,423)
GAAP loss per share (diluted) ............................................................................. $
(1.83 ) $
(2.26 )
Non-GAAP net loss ............................................................................... $
(21,386 ) $
(26,423)
Non-GAAP loss per share (diluted) ....................................................... $
(1.01 ) $
(1.30 )
Non-GAAP gross profit for the twelve months ended December 31, 2024, compared to the corresponding twelve
months ended December 31, 2023, increased by $3.8 million primarily due to higher subscription revenue and lower cost of
service revenue.
Non-GAAP gross profit margin for the twelve months ended December 31, 2024, compared to the corresponding
twelve months ended December 31, 2023, increased by 2 percentage points primarily due to higher subscription revenue
combined with a more favorable mix of subscription revenue.
32
Non-GAAP operating expenses for the twelve months ended December 31, 2024, compared to the corresponding
twelve months ended December 31, 2023, decreased by $1.2 million primarily due to $1.5 million of lower cash
compensation costs, partially offset by higher professional services and consulting costs of $0.5 million. The $1.5 million
decrease in cash compensation costs includes $1.5 million of cash severance costs in 2023, and lower cash compensation
costs of $1.0 million primarily reflecting lower headcount, net of annual compensation adjustments, partially offset by $0.6
million of cash severance costs in 2024 and $0.5 million of lower cash labor costs allocated to cost of revenue due to the
amount and mix of billable labor hours incurred.
Liquidity and Capital Resources
December 31, December 31,
2024
2023
Working capital ....................................................................................................... $
30,193 $
24,555
Current ratio (1) ........................................................................................................
4.3:1
3:1
Cash, cash equivalents and short-term marketable securities .................................. $
28,730 $
27,182
Long-term marketable securities ............................................................................
—
—
Total cash, cash equivalents and marketable securities .................................... $
28,730 $
27,182
(1) The current (liquidity) ratio is calculated by dividing total current assets by total current liabilities.
The $1.5 million increase in cash, cash equivalents and marketable securities at December 31, 2024, from December
31, 2023, resulted primarily from:
•
net proceeds from the issuance of common stock; partially offset by
•
cash used in operations;
•
purchases of common stock related to tax withholding in connection with the vesting of restricted stock,
restricted stock units, and performance restricted stock units; and
•
purchases of property and equipment and capitalized patent costs.
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash
equivalents, marketable securities, and trade accounts receivable. We place our cash and cash equivalents with major banks
and financial institutions and at times deposits may exceed insured limits. Marketable securities include commercial paper,
U.S. treasuries, and federal agency notes. Our investment policy requires our portfolio to be invested to ensure that the
greater of $3.0 million or 7% of the invested funds will be available within 30 days’ notice.
Other than cash used for operating needs, which may include short-term marketable securities, our investment policy
limits our credit exposure to any one financial institution or type of financial instrument by limiting the maximum of 5% of
our cash and cash equivalents and marketable securities or $1.0 million, whichever is greater, to be invested in any one
issuer except for the U.S. government, U.S. federal agencies and U.S. backed securities, which have no limits, at the time of
purchase. Our investment policy also limits our credit exposure by limiting to a maximum of 40% of our cash and cash
equivalents and marketable securities, or $15.0 million, whichever is greater, to be invested in any one industry category,
(e.g., financial, energy, etc.), at the time of purchase. As a result, we believe our credit risk associated with cash and
investments to be minimal.
A decline in the market value of any security that is deemed to be other-than-temporary is charged to earnings. To
determine whether an impairment is other-than-temporary, we consider whether we have the ability and intent to hold the
investment until a market price recovery and evidence indicating that the cost of the investment is recoverable outweighs
evidence to the contrary. There have been no other-than-temporary impairments identified or recorded by us in the years
ended December 31, 2024 and 2023.
33
Cash flows from operating activities
Year Ended
December 31,
Dollar
Percent
2024
2023
Increase/(Decrease) Increase/(Decrease)
Net loss .......................................................... $
(39,010) $
(45,959) $
(6,949)
(15)%
Non-cash items..............................................
17,641
19,556
1,915
10 %
Changes in operating assets and liabilities ....
(5,203 )
4,408
9,611
218 %
Net cash used in operating activities ...... $
(26,572) $
(21,995) $
4,577
21%
Cash flows used in operating activities for the twelve months ended December 31, 2024, compared the
corresponding twelve months ended December 31, 2023, increased by $4.6 million, primarily as a result of $9.6 million
from unfavorable timing of changes in operating assets and liabilities, and $1.9 million of lower non-cash items included in
net loss, partially offset by $7.0 million lower net loss. The unfavorable timing of changes in operating assets and liabilities
are largely due to the amount and timing of customer receipts, vendor payments, and refundable research and development
tax credits. Customer receipts were negatively impacted by $5.8 million related to the expiration of a commercial contract
in June 2024. The change in non-cash items primarily reflects lower stock-based compensation, depreciation, and
amortization expenses.
Cash flows from investing activities
Cash flows from investing activities for the twelve months ended December 31, 2024, compared to the
corresponding twelve months ended December 31, 2023, decreased by $23.8 million, primarily as a result of higher
purchases of marketable securities, and lower net proceeds from maturities of marketable securities.
Cash flows from financing activities
Cash flows from financing activities for the twelve months ended December 31, 2024, compared to the
corresponding twelve months ended December 31, 2023, increased by $31.5 million, primarily as a result of the $32.2
million of net cash proceeds raised from our registered direct stock offering in February 2024, partially offset by higher
purchases of common stock.
Future cash expectations
Under the rules of ASC Subtopic 205-40 “Presentation of Financial Statements-Going Concern” (“ASC 205-40”),
companies are required to evaluate whether conditions and/or events raise substantial doubt about their ability to meet their
future financial obligations as they become due within one year after the date that the financial statements are issued. This
evaluation takes into account a company’s current available cash and projected cash needs over the one-year evaluation
period but may not consider things beyond its control. We have incurred operating losses and negative cash flows from
operating activities during the last several years, and depending on future results, may continue to incur such losses and
negative cash flows in the future. We believe our currently available cash and marketable securities will satisfy our
projected working capital and capital expenditure requirements for at least the next 12 months.
We expect that our subscription revenue in 2025 will be negatively impacted by the termination of a commercial
contract that contributed $3.3 million of subscription revenue in 2024. This contract is expected to end in April 2025 and
contribute $1.1 million of subscription revenue in 2025. Our subscription revenue in 2025 may also be impacted negatively
by the expiration of a commercial contract in June 2024 that may or may not be extended. This contract contributed $2.1
million of subscription revenue in 2024. We expect government service revenue in 2025 to be $1.7 million to $2.0 million
lower than 2024 due to a smaller approved budget for program work in 2025.
We expect our expenses in 2025 to be significantly lower than 2024 due to the reorganization we announced on
February 26, 2025. The reorganization is expected to reduce our cash expenses by approximately $16.5 million on an
annualized basis. We have also identified approximately $5.5 million of other annualized cash cost savings. We expect to
incur approximately $3.0 million in one-time reorganization costs in the first quarter of 2025.
34
Registered Direct Offering
On February 24, 2024, we entered into purchase agreements with certain investors providing for the issuance and
sale by us of 929 thousand common shares in a registered direct stock offering. The common shares were offered at a price
of $35.00 per share, and the gross cash proceeds to us were $32.5 million. We incurred $0.3 million of legal costs related to
the offering. The closing of the registered direct offering occurred on February 27, 2024.
Equity Distribution Agreement
On February 27, 2024, we provided notice to Wells Fargo Securities, LLC of our intention to terminate the Equity
Distribution Agreement that had previously been in place, with an effective date of March 1, 2024. No shares were sold
under the Equity Distribution Agreement during the years ended December 31, 2024 and 2023.
Shelf Registration
On June 23, 2023, we filed a new shelf registration statement on Form S-3 that included $34.6 million of unsold
securities from our prior shelf registration statement filed on June 5, 2020. The new shelf registration statement became
effective on July 19, 2023, and expires on July 19, 2026. Under the new shelf registration statement, we may sell securities
in one or more offerings up to $100.0 million. As of December 31, 2024, $67.5 million remained available under the
new shelf registration statement.
We may sell shares under the shelf registration and/or use similar or other financing means to raise working capital
in the future, if necessary, to support continued investment in our growth initiatives. We may also raise capital in the future
to fund acquisitions and/or investments in complementary businesses, technologies or product lines. If it becomes necessary
to obtain additional financing, we may not be able to do so, or if these funds are available, they may not be available on
satisfactory terms. These factors may inhibit our near-term ability to obtain financing.
Forward-Looking Statements
This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Words such as “may,” “might,” “plan,”
“should,” “could,” “expect,” “anticipate,” “intend,” “believe,” “project,” “forecast,” “estimate,” “continue,” and variations
of such terms or similar expressions are intended to identify such forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements, or other statements made by us, are
made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and
factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a
result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements,
and investors are cautioned not to place undue reliance on such statements. We believe that the following factors, among
others (including those described in Item 1A. “Risk Factors”), could affect our future performance and the liquidity and
value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking
statements made by us. Forward-looking statements include but are not limited to statements relating to:
•
the concentration of most of our revenue among few customers and the trends and sources of future revenue;
•
anticipated successful advocacy of our technology by our partners;
•
anticipated revenue to be generated from current contracts, renewals and expirations or terminations of
contracts, and new programs;
•
our belief regarding the global deployment of our products;
•
our beliefs regarding potential outcomes of participating in the HolyGrail 2.0 initiative and the utility of our
products in the recycling industry;
•
our future level of investment in our business, including investment in research, development and engineering
of products and technology, development of our intellectual property, sales growth initiatives and
development of new market opportunities;
35
•
anticipated expenses, costs, margins, provision for income taxes and investment activities in the foreseeable
future;
•
our assumptions and expectations related to stock awards;
•
our belief that we have one of the world’s most extensive patent portfolios in digital watermarking and related
fields;
•
anticipated effects of our adoption of accounting pronouncements;
•
our beliefs regarding our critical accounting policies;
•
our expectations regarding the impact of accounting pronouncements issued but not yet adopted;
•
our estimates, judgments and assumptions related to impairment testing;
•
variability of contracted arrangements in response to changes in circumstances underlying the original
contractual arrangements;
•
business opportunities that could require that we seek additional financing and our ability to do so;
•
the size and growth of our markets and our assumptions and beliefs related to those markets;
•
the existence of international growth opportunities and our future investment in such opportunities;
•
our expected short-term and long-term liquidity positions;
•
our capital expenditure and working capital requirements and our ability to fund our capital expenditure and
working capital needs through cash flow from operations or financing;
•
our expectations regarding our ability to meet future financial obligations as they become due within the
coming fiscal year;
•
the effect of computerized trading on our stock price;
•
capital market conditions, our expectations regarding credit risk exposure, interest rate volatility and other
limitations on the availability of capital, which could have an impact on our cost of capital and our ability to
access the capital markets;
•
our use of cash, cash equivalents and marketable securities in upcoming quarters and the possibility that our
deposits of cash and cash equivalents with major banks and financial institutions may exceed insured limits;
•
the strength of our competitive position and our ability to innovate and enhance our competitive
differentiation;
•
our beliefs related to our existing facilities;
•
protection, development and monetization of our intellectual property portfolio;
•
our beliefs related to our relationship with our employees and the effect of increasing diversity within our
workforce;
•
our beliefs regarding cybersecurity incidents;
•
our beliefs related to certain provisions in our bylaws and articles of incorporation;
•
our beliefs related to legal proceedings and claims arising in the ordinary course of business; and
•
other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set
forth in Item 1A. “Risk Factors.”
36
We believe that the risk factors specified above and the risk factors contained in Item 1A, “Risk Factors,” among
others, could affect our future performance and the liquidity and value of our securities and cause our actual results to differ
materially from those expressed or implied by forward-looking statements made by us or on our behalf. Investors should
understand that it is not possible to predict or identify all risk factors and that there may be other factors that may cause our
actual results to differ materially from the forward-looking statements. All forward-looking statements made by us or by
persons acting on our behalf apply only as of the date of this Annual Report on Form 10-K. We do not undertake any
obligation to publicly update or revise any forward-looking statements to reflect future events, information or
circumstances that arise after the date of the filing of this Annual Report on Form 10-K.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements and the accompanying Notes that are filed as part of this Annual Report are
listed under Part III, Item 15, Exhibits and Financial Statement Schedules and are set forth beginning on page F-1
immediately following the signature page of this Form 10-K.
ITEM 9:
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, have carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this Form
10-K. These disclosure controls and procedures are designed to ensure that information required to be disclosed by us in
reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our
management, including our principal executive officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Based on our evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures, as of the end of the period covered by this Form 10-K, were effective.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. GAAP.
Because of inherent limitations, any control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Management is committed to continue
monitoring our internal controls over financial reporting and will modify or implement additional controls and procedures
that may be required to ensure the ongoing integrity of our consolidated financial statements.
With the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an
evaluation of the effectiveness of internal control over financial reporting based on the framework established in Internal
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, (“COSO”). Based on this evaluation, management has concluded that internal control over financial reporting
was effective as of the end of the period covered by this Form 10-K based on those criteria.
37
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended December
31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B: OTHER INFORMATION
During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a
“Rule10b5-1 trading arrangement” or “non-Rule10b5-1 trading arrangement”, as each term is defined in Item 408(a) of
Regulation S-K.
ITEM 9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
38
PART III
Certain information required by Part III of this Annual Report on Form 10-K is incorporated herein by reference to
the Proxy Statement for our 2025 annual meeting of shareholders, which we intend to file no later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Code of Ethics
We have adopted a Code of Business Conduct that applies to our principal executive officer, principal financial
officer and controller, as well as a Code of Ethics for Financial Professionals that applies to our principal financial officer
and controller. We have made these codes available in the Corporate Governance section of our website at
http://www.digimarc.com/about/company/corporate-governance. If we waive, or implicitly waive, any material provision
of the codes, or substantively amend the codes, we will disclose that fact on our website within four business days.
The other information required by this item will be included in the Proxy Statement, which we intend to file with the
SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is
incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC
no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated
herein by reference.
ITEM 12:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC
no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated
herein by reference.
ITEM 13:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC
no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated
herein by reference.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item will be included in the Proxy Statement, which we intend to file with the SEC
no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and is incorporated
herein by reference.
39
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following documents are filed as part of this Annual Report on Form 10-K:
(i) Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2024 and 2023
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
(ii) Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All schedules have been omitted since they are not required or are not applicable or the required information is
shown in the consolidated financial statements or related notes.
(a)(3) Exhibits
EXHIBIT INDEX
The agreements included or incorporated by reference as exhibits to this report may contain representations and
warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely
for the benefit of the other party or parties to the applicable agreement and:
•
were not intended to be treated as categorical statements of fact, but rather as a means of allocating the risk to
one of the parties if those statements prove to be inaccurate;
•
were qualified by disclosures that were made to the other party or parties in connection with the negotiation of
the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•
may apply standards of “materiality” that are different from “materiality” under the securities laws; and
•
were made only as of the date of the applicable agreement or other date or dates that may be specified in the
agreement.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were
made or at any other time. Additional information about Digimarc may be found elsewhere in this Annual Report on Form
10-K and in Digimarc’s other public filings, which are available without charge through the SEC’s website at
http://www.sec.gov.
40
Exhibit
Number
Exhibit Description
2.1
Separation Agreement among DMRC Corporation, DMRC LLC, Digimarc Corporation and, with respect to
certain sections, L-1 Identity Solutions, Inc. (incorporated by reference to Exhibit 2.1 to Amendment No. 2
to the Company’s Registration Statement on Form 10, filed with the Commission on August 13, 2008 (File
No. 001-34108))†
2.2
Agreement and Plan of Merger dated April 30, 2010 between Digimarc Corporation, a Delaware
corporation, and Digimarc Oregon Corporation, an Oregon corporation (incorporated by reference to Exhibit
2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 4, 2010 (File No.
001-34108))
2.3
Share Purchase Agreement dated November 15, 2021 between Digimarc Corporation, an Oregon
corporation, and EVRYTHNG Limited, a company incorporated and registered in England, the sellers party
thereto, and Fortis Advisors LLC, a Delaware limited liability company (incorporated by reference to
Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 4, 2022
(File No. 001-34108))
3.1
Articles of Incorporation of Digimarc Corporation (incorporated by reference to Exhibit 3.1 to the
Company’s Quarterly Report on Form 10-Q, filed with the Commission on October 30, 2020 (File No. 001-
34108))
3.2
Bylaws of Digimarc Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report
on Form 8-K, filed with the Commission on May 4, 2010 (File No. 001-34108))
4.1
Specimen common stock certificate of Digimarc Corporation (incorporated by reference to Exhibit 4.1 to the
Company’s Quarterly Report on Form 10-Q, filed with the Commission on July 25, 2014 (File No. 001-
34108))
4.2
Description of Securities (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form
10-K, filed with the Commission on February 27, 2020 (File No. 001-34108))
4.3
Warrant Agency Agreement, dated January 3, 2022, between Digimarc Corporation and Broadridge
Corporate Issuer Solutions, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K, filed with the Commission on January 4, 2022 (File No. 001-34108))
10.1
License Agreement, dated as of August 1, 2008, between DMRC Corporation and L-1 Identity Solutions
Operating Company (incorporated by reference to Exhibit 10.2 to Amendment No. 4 to the Company’s
Registration Statement on Form 10, filed with the Commission on October 2, 2008 (File No. 001-34108))(1)
10.2
Counterfeit Deterrence System Development and License Agreement Amendment, dated December 1, 2022,
and effective January 1, 2023, between Digimarc Corporation and Bank for International Settlements
(incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K, filed with the
Commission on March 2, 2023 (File No. 001-34108))
*10.3
Digimarc Corporation 2008 Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, filed with the Commission on April 25, 2014 (File No. 001-
34108))
*10.4
Form of Indemnification Agreement between Digimarc Corporation and each of its executive officers and
directors (incorporated by reference to Exhibit 10.1 to Digimarc Corporation’s Annual Report on Form 10-
K, as filed by Digimarc Corporation with the Securities and Exchange Commission on March 13, 2006 (File
No. 000-28317))
*10.5
Form of Change of Control Retention Agreement entered into by and between Digimarc Corporation and
Mr. Meyer (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K, filed
with the Commission on February 22, 2019 (File No. 001-34108))
10.6
Patent License Agreement, dated as of June 11, 2009, between Digimarc Corporation and The Nielsen
Company (US), LLC (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q, filed with the Commission on July 31, 2009 (File No. 001-34108))(2)
10.7
Limited Liability Company I Agreement, dated June 11, 2009, between Digimarc Corporation and The
Nielsen Company (US), LLC (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report
on Form 10-Q, filed with the Commission on July 31, 2009 (File No. 001-34108))(2)
41
10.8
Limited Liability Company II Agreement, dated June 11, 2009 between Digimarc Corporation and The
Nielsen Company (US), LLC (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report
on Form 10-Q, filed with the Commission on July 31, 2009 (File No. 001-34108))(2)
10.9
Lease Agreement, dated March 22, 2004, between Digimarc Corporation and PS Business Parks, L.P., as
amended on May 13, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on
Form 10-Q, filed with the Commission on July 30, 2010 (File No. 001-34108))
10.10
Second Amendment to Lease, dated July 31, 2015, between PD Office Owner 9, L.P. and Digimarc
Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q,
filed with the Commission on October 30, 2015 (File No. 001-34108))
10.11
Patent Rights Agreement, dated October 5, 2010, between Digimarc Corporation and IV Digital Multimedia
Inventions, LLC (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-
K, filed with the Commission on March 3, 2011 (File No. 001-34108))
*10.12
Digimarc Corporation 2018 Incentive Plan, as amended (incorporated by reference to Appendix A of the
Company’s Definitive Proxy Statement on Schedule 14A, filed with the Commission on March 28, 2023
(file No. 001-34108))
*10.13
Equity Compensation Program for Non-Employee Directors Under the Digimarc 2018 Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the
Commission on August 8, 2023 (File No. 001-34108))
10.14
Grant-Back License Agreement, dated October 5, 2010, between Digimarc Corporation and IV Digital
Multimedia Inventions, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q, filed with the Commission on May 2, 2019 (File No. 001-34108)) (5)
10.15
Amendment No. 1 to Equity Distribution Agreement, dated August 6, 2020, between Digimarc Corporation
and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q, filed with the Commission on October 30, 2020 (File No. 001-34108))
*10.16
Employment Agreement, effective as of August 10, 2020, between Digimarc Corporation and Bruce Davis
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
Commission on August 14, 2020 (File No. 001-34108))
10.17
Subscription Agreement, dated September 29, 2020, between the Company and TCM Strategic Partners L.P.
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
Commission on September 29, 2020 (File No. 001-34108))
10.18
Registration Rights Agreement, dated September 29, 2020, between the Company and TCM Strategic
Partners L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed
with the Commission on September 29, 2020 (File No. 001-34108))
10.19
Work Agreement, dated October 5, 2010, by and among Digimarc Corporation, Invention Law Group, P.C.
and IV Digital Multimedia Inventions, LLC (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q, filed with the Commission on April 29, 2021 (File No. 001-34108)) +
*10.20
Separation Agreement and General Release, dated April 12, 2021, between Digimarc Corporation and Bruce
Davis (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed
with the Commission on April 29, 2021 (File No. 001-34108))
*10.21
Employment Agreement, dated April 12, 2021, between Digimarc Corporation and Riley McCormack
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the
Commission on April 29, 2021 (File No. 001-34108))
*10.22
Amendment No. 1 to Employment Agreement, dated as of February 27, 2023, between Digimarc
Corporation and Riley McCormack (incorporated by reference to Exhibit 10.25 to the Company’s Annual
Report on Form 10-K, filed with the Commission on February 29, 2024 (File No. 001-34108))
*10.23
Separation Agreement and General Release, dated December 28, 2021, between Digimarc Corporation and
Robert Chamness (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-
K, filed with the Commission on March 7, 2022 (File No. 001-34108))
10.24
Sublease Agreement, dated February 4, 2022, by and between Fiserv Solutions, LLC and Digimarc
Corporation (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K,
filed with the Commission on March 7, 2022 (File No. 001-34108))
42
10.25
Lease Extension Agreement, dated February 4, 2022, between Portland 1 LLC and Digimarc Corporation
(incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K, filed with the
Commission on March 7, 2022 (File No. 001-34108))
*10.26
Form of Change of Control Retention Agreement entered into between Digimarc Corporation and Mr.
Meyer incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K, filed
with the Commission on March 7, 2022 (File No. 001-34108))
*10.27
Digimarc Corporation Short-Term Incentive Plan (incorporated by reference to Exhibit 10.30 to the
Company’s Annual Report on Form 10-K, filed with the Commission on February 29, 2024 (File No. 001-
34108))
*10.28
Consulting Agreement, entered into as of January 9, 2024, by and between the Company and Andrew
Walter (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K, filed
with the Commission on February 29, 2024 (File No. 001-34108))
10.29
Form of Common Stock Purchase Agreement, dated February 24, 2024 (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 26, 2024 (File
No. 001-34108))
*10.30
Form of Executive Retention Agreement entered into between Digimarc Corporation and each of Ms. Quinn
and Messrs. Beck, Benton, Karamanos, Rodriguez, and Sickles
*10.31
Executive Retention Agreement entered into between Digimarc Corporation and Mr. McCormack
10.32
Counterfeit Deterrence System Development and License Agreement, dated as of December 6, 2012,
between Digimarc Corporation and the Bank for International Settlements +
21.1
List of Subsidiaries
23.1
Consent of Independent Registered Public Accounting Firm
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1
Section 1350 Certification of Chief Executive Officer
32.2
Section 1350 Certification of Chief Financial Officer
97
Digimarc Corporation Incentive Compensation Recovery Policy
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Label Linkbase Document
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
43
*
Management contract or compensatory plan or arrangement.
†
Schedules and certain exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
Digimarc hereby undertakes to furnish to the Securities and Exchange Commission (the “Commission”) copies of the
omitted schedules and exhibits upon request by the Commission.
+
Certain identified portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K.
(1) Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by
the Commission on October 21, 2008, under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.
(2) Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by
the Commission on September 10, 2009, under Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.
(3) Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by
the Commission on May 6, 2016, under Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.
(4) Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to an order granted by
the Commission on September 3, 2013, under Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.
(5) Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under
the Exchange Act. Confidential portions of this exhibit have been separately filed with the SEC.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DIGIMARC CORPORATION
Date: February 27, 2025
By:
/S/ CHARLES BECK
Charles Beck
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/S/ RILEY MCCORMACK
President, Chief Executive Officer and Director
February 27, 2025
Riley McCormack
(Principal Executive Officer)
/S/ CHARLES BECK
Chief Financial Officer and Treasurer
February 27, 2025
Charles Beck
(Principal Financial and Accounting Officer)
/S/ KATIE KOOL
Chair of the Board of Directors
February 27, 2025
Katie Kool
/S/ DANA MCILWAIN
Director
February 27, 2025
Dana Mcilwain
/S/ LASHONDA ANDERSON-WILLIAMS
Director
February 27, 2025
LaShonda Anderson-Williams
/S/ MICHAEL PARK
Director
February 27, 2025
Michael Park
/S/ SANDEEP DADLANI
Director
February 27, 2025
Sandeep Dadlani
/S/ SHEILA CHESTON
Director
February 27, 2025
Sheila Cheston
F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm ..........................................................................................
F-2
Consolidated Balance Sheets .........................................................................................................................................
F-4
Consolidated Statements of Operations and Comprehensive Loss................................................................................
F-5
Consolidated Statements of Shareholders’ Equity ........................................................................................................
F-6
Consolidated Statements of Cash Flows .......................................................................................................................
F-7
Notes to Consolidated Financial Statements .................................................................................................................
F-8
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Digimarc Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Digimarc Corporation and subsidiaries (the Company)
as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, shareholders’
equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its
operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts
or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-3
Revenue recognition for new contracts
As discussed in Note 3 to the consolidated financial statements, the Company recorded $38,418 thousand of total revenue
for the year ended December 31, 2024, of which $22,418 thousand was subscription revenue and $16,000 thousand was
service revenue. Customer arrangements may contain multiple performance obligations such as software subscriptions,
software products, software development services, and/or maintenance and support fees. The Company accounts for
individual products and services separately if they are distinct. The Company derives its revenue primarily from software
subscriptions and software development services with a wide range of software and service offerings.
We identified the evaluation of the Company’s revenue recognition related to new contracts entered during the year as a
critical audit matter. Challenging auditor judgment was required to evaluate the potential impact of specific contract terms
on revenue recognition due to the unique nature of new revenue contracts within each software and service offering.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of
certain internal controls related to the Company’s revenue recognition process, including a control over the Company’s
assessment of the contract terms and applicable revenue recognition requirements for new contracts. For a selection of new
contracts, we read the contract and evaluated the Company’s assessment of the contract terms and revenue recognition. For
certain contracts, we confirmed the relevant contract terms directly with the Company’s customers and compared them to
the terms utilized by the Company to record revenue. We assessed the recorded revenue by selecting a sample of
transactions and comparing the revenue recognized for consistency with the terms of the underlying documentation,
including contracts with customers. For a selection of revenue contracts entered during the year, we interviewed personnel
outside of the accounting function to consider any other relevant facts and circumstances and their impact on revenue
recognition.
/s/ KPMG LLP
We have served as the Company’s auditor since 2010.
Portland, Oregon
February 27, 2025
F-4
DIGIMARC CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents ....................................................................................... $
12,365 $
21,456
Marketable securities ..............................................................................................
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
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued
and outstanding at December 31, 2024 and December 31, 2023) .......................
50
50
Common stock (par value $0.001 per share, 50,000 authorized, 21,495 and
20,379 shares issued and outstanding at December 31, 2024 and December 31,
2023, respectively) ..............................................................................................
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
See Notes to Consolidated Financial Statements
F-5
DIGIMARC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
Year Ended December 31,
2024
2023
Revenue:
Subscription ........................................................................................................... $
22,418 $
18,973
Service ....................................................................................................................
16,000
15,878
Total revenue ..................................................................................................
38,418
34,851
Cost of revenue:
Subscription (1) .......................................................................................................
2,959
2,975
Service (1) ................................................................................................................
6,628
7,252
Amortization expense on acquired intangible assets ..............................................
4,592
4,459
Total cost of revenue .......................................................................................
14,179
14,686
Gross profit ....................................................................................................................
24,239
20,165
Operating expenses:
Sales and marketing ...............................................................................................
21,167
22,409
Research, development and engineering ................................................................
26,209
26,577
General and administrative ....................................................................................
17,073
18,071
Amortization expense on acquired intangible assets ..............................................
1,097
1,065
Impairment of lease right of use assets and leasehold improvements ....................
—
250
Total operating expenses .................................................................................
65,546
68,372
Operating loss ................................................................................................................
(41,307)
(48,207)
Other income, net ..........................................................................................................
2,341
2,452
Loss before income taxes ..............................................................................................
(38,966)
(45,755)
Provision for income taxes ............................................................................................
(44 )
(204 )
Net loss ........................................................................................................... $
(39,010) $
(45,959)
Loss per share:
Loss per share — basic ................................................................................................. $
(1.83 ) $
(2.26 )
Loss per share — diluted .............................................................................................. $
(1.83 ) $
(2.26 )
Weighted average shares outstanding — basic ......................................................
21,261
20,322
Weighted average shares outstanding — diluted ...................................................
21,261
20,322
Comprehensive loss:
Unrealized gain (loss) on marketable securities, net of tax of $0 .......................... $
(13 ) $
138
Foreign currency translation adjustment, net of tax of $0 ......................................
(406 )
1,661
Other comprehensive income (loss)................................................................ $
(419 ) $
1,799
Net loss ...................................................................................................................
(39,010)
(45,959)
Comprehensive loss ........................................................................................ $
(39,429) $
(44,160)
(1) Cost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets.
See Notes to Consolidated Financial Statements
F-6
DIGIMARC CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Accumulated
Additional
Other
Total
Preferred Stock Common Stock Paid-in Accumulated Comprehensive Shareholders'
Shares Amount Shares Amount Capital
Deficit
Loss
Equity
Year Ended December 31, 2024
Balance at December 31, 2023 ....
10 $
50 20,379 $
20 $ 376,189 $
(311,768) $
(2,564) $
61,927
Issuance of common stock ......
—
—
929
1
32,217
—
—
32,218
Issuance of restricted common
stock ....................................
—
—
45
—
—
—
—
—
Vesting of restricted stock
units .....................................
—
—
197
—
—
—
—
—
Vesting of performance
restricted stock units ............
—
—
60
—
—
—
—
—
Forfeiture of restricted
common stock .....................
—
—
(7)
—
—
—
—
—
Purchase of common stock......
—
— (108)
—
(3,416)
—
—
(3,416)
Stock-based compensation ......
—
—
—
—
10,059
—
—
10,059
Unrealized gain (loss) on
marketable securities ...........
—
—
—
—
—
—
(13)
(13)
Foreign currency translation
adjustments .........................
—
—
—
—
—
—
(406)
(406)
Net loss ...................................
—
—
—
—
—
(39,010)
—
(39,010)
Balance at December 31, 2024 ....
10 $
50 21,495 $
21 $ 415,049 $
(350,778) $
(2,983) $
61,359
Year Ended December 31, 2023
Balance at December 31, 2022 ....
10 $
50 20,260 $
20 $ 367,692 $
(265,809) $
(4,363) $
97,590
Issuance of common stock ......
—
—
10
—
—
—
—
—
Issuance of restricted common
stock ....................................
—
—
45
—
—
—
—
—
Vesting of restricted stock
units .....................................
—
—
161
—
—
—
—
—
Vesting of performance
restricted stock units ............
—
—
2
—
—
—
—
—
Forfeiture of restricted
common stock .....................
—
—
(6)
—
—
—
—
—
Purchase of common stock......
—
—
(93)
—
(2,724)
—
—
(2,724)
Stock-based compensation ......
—
—
—
—
11,221
—
—
11,221
Unrealized gain (loss) on
marketable securities ...........
—
—
—
—
—
—
138
138
Foreign currency translation
adjustments .........................
—
—
—
—
—
—
1,661
1,661
Net loss ...................................
—
—
—
—
—
(45,959)
—
(45,959)
Balance at December 31, 2023 ....
10 $
50 20,379 $
20 $ 376,189 $
(311,768) $
(2,564) $
61,927
See Notes to Consolidated Financial Statements
F-7
DIGIMARC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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 and cash equivalents at beginning of period ...................................
21,456
33,598
Cash and cash equivalents at end of period ............................................. $
12,365 $
21,456
Supplemental disclosure of cash flow information:
Cash received (paid) for income taxes, net ............................................................ $
(63 ) $
(233 )
Supplemental schedule of non-cash activities:
Property and equipment and patent costs in accounts payable .............................. $
19 $
6
Stock-based compensation capitalized to software and patent costs ..................... $
30 $
63
Right of use assets obtained in exchange for lease obligations .............................. $
— $
31
See Notes to Consolidated Financial Statements
F-8
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) Description of Business and Summary of Significant Accounting Policies
Description of Business
Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30
years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon
one or both of the following two things: the identification and the authentication of physical and digital items, often at
massive scale, and often where other methods of identification or authentication don’t work well or don’t work at all.
The Digimarc Illuminate platform is a distinctive software as a service (“SaaS”) cloud-based platform for digital
connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response
(“QR”) codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a
centralized platform for capturing insights about digital interactions and automating activities based on that information.
The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable
ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust
and connectivity. All of the Company’s products are complementary to each other, providing exponential benefits when
combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc’s products
provide many benefits including:
•
Digimarc Automate improves product inspection by embedding imperceptible digital watermarks into
products, labels, and packaging, which are detectable by standard vision systems. This significantly reduces
mixing errors and mislabeling, ensuring higher accuracy and efficiency in production, fulfillment, and
distribution facilities without additional costs for special inks or hardware. By enabling real-time data analysis
and minimizing human error, Digimarc Automate enhances quality assurance, reduces waste, and lowers the
risk of product recalls, giving brands a competitive edge.
•
Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned
communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant
QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences
(including personalized and automated loyalty and rewards programs) based on a variety of factors such as
time and location or previous behavior. Connecting engagements across the physical and digital worlds in a
singular view results in powerful new capabilities and insights for brands.
•
Digimarc Recycle increases the quality and quantity of recycled materials by digitizing products and
packaging with digital watermarking technology. Coupled with consumer engagement capabilities, brands
can leverage a direct, digital communications channel. Plus, Digimarc Recycle creates a cloud-based record
of never-before-seen post-consumption data to provide new insights that benefit stakeholders across the value
chain, including brands, facility operators, and Producer Responsibility Organizations (“PROs”).
•
Digimarc Retail Experience delivers smarter, connected packaging that supports next-generation retail
checkout systems, including checkout efficiency (faster scanning) and checkout effectiveness (reduced
shrinkage including gift card and price look-up fraud prevention), optimized operational processes, advanced
consumer engagement experiences, compliance with upcoming industry standards, and the collection of
powerful first-party data and consumer insights.
•
Digimarc Validate supports authentication in the physical and digital worlds to help ensure online
interactions can be trusted and that real products and digital assets are genuine and in the right place.
Digimarc’s technology protects digital images, audio, product packaging, gift cards, and other physical items
by delivering exclusive, covert digital watermarks and/or dynamic QR codes and a cloud-based record of
product authentication information. In addition, consumer engagement capabilities provide a direct, digital
communications channel.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-9
Principles of Consolidation
The consolidated financial statements include the accounts of Digimarc and its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in accordance with U.S. Generally Accepted Accounting
Principles (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The most significant estimates
and judgments made by the Company relate to its revenue accounting policy. Management bases its estimates on historical
experience and on other assumptions that are believed to be reasonable in the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities, and the measurement and recognition of
revenue that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Cash Equivalents
The Company considers all highly liquid marketable securities with original maturities of 90 days or less at the date
of acquisition to be cash equivalents. Cash equivalents include commercial paper, federal agency notes, U.S. treasuries
and money market securities, totaling $8,889 and $17,362 at December 31, 2024 and 2023, respectively. Cash equivalents
are carried at either cost or fair value depending on the type of security.
Marketable Securities
The Company considers all investments with original maturities over 90 days that mature in less than one-year from
the balance sheet date to be short-term marketable securities. Short-term marketable securities primarily include
commercial paper, U.S. treasuries and federal agency notes.
The Company’s marketable securities are classified as available-for-sale. Unrealized holding gains and losses are
excluded from earnings and are reported net of tax in “accumulated other comprehensive loss” in the Consolidated Balance
Sheets until realized. Realized gains and losses are included in “other income, net” in the Consolidated Statements of
Operations and are derived using the specific identification method for determining the cost of marketable securities sold.
A decline in the market value of any security that is deemed to be other-than-temporary is charged to earnings. To
determine whether an impairment is other-than-temporary, the Company considers whether it has the ability and intent to
hold the investment until a market price recovery and considers whether evidence indicating that the cost of the investment
is recoverable outweighs evidence to the contrary. There have been no other-than-temporary impairments identified or
recorded by the Company.
Concentrations of Business and Credit Risk
A significant portion of the Company’s business depends on a limited number of large contracts. The loss of any
large contract may result in loss of revenue and margin on a prospective basis. Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and
accounts receivable.
The Company places its cash and cash equivalents with major banks and financial institutions and at times deposits
may exceed insured limits. Other than cash used for operating needs, which may include short-term marketable securities
with the Company’s principal banks, the Company’s investment policy limits its credit exposure to any one financial
institution or type of financial instrument by limiting the maximum of 5% of its cash equivalents and marketable securities
or $1,000, whichever is greater, to be invested in any one issuer except for the U.S. government, U.S. federal agencies and
U.S. backed securities, which have no limits, at the time of purchase. The Company’s investment policy also limits its
credit exposure by limiting the maximum of 40% of its cash equivalents and marketable securities, or $15,000, whichever
is greater, to be invested in any one industry category, (e.g., financial, energy, etc.), at the time of purchase. As a result, the
Company’s credit risk associated with cash and cash equivalents and marketable securities is believed to be minimal.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-10
The Company manages credit risk on accounts receivable by evaluating a customer’s credit worthiness before
extending any significant amount of credit. There is a significant concentration of accounts receivable at various times from
our three largest customers. All three customers have significant financial means and a history of paying their invoices. The
Company does not have a history of significant bad debt write-offs. As a result, the Company’s credit risk associated with
accounts receivable is believed to be low.
Contingencies
The Company evaluates all pending or threatened contingencies or commitments, if any, that are reasonably likely to
have a material adverse effect on the Company’s operations or financial position. The Company assesses the probability of
an adverse outcome and determines if it is remote, reasonably possible or probable as defined in accordance with
Accounting Standards Codification (“ASC”) 450 “Contingencies.” If information available prior to the issuance of the
financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of
the financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then the loss
is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions
pursuant to ASC 450 are not met, but the probability of an adverse outcome is at least reasonably possible, the Company
will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an
estimate cannot be made.
Goodwill
The Company tests goodwill for impairment annually and whenever events or changes in circumstances indicate that
the carrying value may exceed the fair value, in accordance with ASC 350 “Intangibles – Goodwill and Other.” The
Company operates as a single reporting unit. The Company estimates the fair value of its single reporting unit using a
market approach, which takes into account the Company’s market capitalization plus an estimated control premium. In
connection with the Company’s annual impairment tests of goodwill as of June 30, 2024 and 2023, it was concluded that
there was no impairment to goodwill as the estimated fair value of the Company’s reporting unit significantly exceeded the
carrying value.
Impairment of Long-Lived Assets
The Company assesses long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable, in accordance with ASC 360 “Property, Plant and Equipment.”
Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of the assets to
future net undiscounted cash flows expected to be generated by the assets over their remaining useful life. If such assets are
considered to be impaired, the impairment would be recognized in operating results at the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Fair value is determined based on discounted cash flows,
observable market values or appraised values, depending on the nature of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Research and Development
Research and development costs are expensed as incurred in accordance with ASC 730 “Research and
Development.”
Software Development Costs
Under ASC 985 “Software,” software development costs are to be capitalized beginning when a product’s
technological feasibility has been established and ending when a product is made available for general release to customers.
To date, the establishment of technological feasibility of the Company’s products has occurred shortly before general
release and, therefore, software development costs qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and has charged all such costs to research and development
expense.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-11
Patent Costs
Costs associated with the application and award of patents in the U.S. and various other countries are capitalized and
amortized on a straight-line basis over the term of the patents as determined at award date, which varies depending on the
pendency period of the application. Capitalized patent costs, also referred to as patent prosecution costs, include internal
legal labor, professional legal fees, government filing fees and translation fees related to expanding the Company’s patent
portfolio.
Costs associated with the maintenance and annuity fees of patents are accounted for as prepaid assets at the time of
payment and amortized over the shorter of the maintenance period or remaining life of the related patent.
Revenue Recognition
See Note 3 for detailed disclosures of the Company’s revenue recognition policy.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718 “Compensation—Stock
Compensation,” which requires the measurement and recognition of compensation for all stock-based awards made to
employees and directors including restricted stock awards, restricted stock units and performance stock units based on
estimated fair values. The estimated fair value of stock-based awards is recognized over the vesting period of the award
using the straight-line method.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740 “Income Taxes” utilizing the asset and
liability method. Under the asset and liability method, deferred income taxes reflect the future tax consequences of
differences between the tax basis of assets and liabilities and their financial reporting amounts. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period of enactment.
The Company records valuation allowances on deferred tax assets if, based on available evidence, it is more-likely-
than-not that all or some portion of the assets will not be realized.
The Company is subject to income taxes within the U.S. and other countries, and, in the ordinary course of business,
there are transactions and calculations where the ultimate tax determination is uncertain. The Company reports a liability
(or contra asset) for unrecognized tax benefits resulting from uncertain tax positions taken (or expected to be taken) on a tax
return. The Company recognizes interest and penalties, if any, related to the unrecognized tax benefits in the provision for
income taxes.
Liquidity
Under ASC 205-40 “Presentation of Financial Statements-Going Concern”, companies are required to evaluate
whether conditions and/or events raise substantial doubt about their ability to meet their future financial obligations as they
become due within one year after the date that the financial statements are issued. This evaluation takes into account a
company’s current available cash and projected cash needs over the one year evaluation period but may not consider things
beyond its control. The Company has incurred operating losses and negative cash flows from operating activities the last
several years and depending on future results may continue to incur such losses and negative cash flows in the future. The
Company believes its currently available cash and marketable securities will satisfy the Company’s projected working
capital and capital expenditure requirements for at least the next 12 months.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-12
Foreign Currency
The Company prepares consolidated financial statements in its reporting currency, the U.S. dollar. The functional
currency of the Company’s foreign subsidiaries generally is the applicable local currency. Monetary assets and liabilities
denominated in a foreign currency are remeasured at the end of each reporting period, with respective gain or loss recorded
in other income, net on the Consolidated Statement of Operation. Financial statements of each foreign subsidiaries are
translated from their respective functional currencies to U.S. dollar, with translation adjustments recorded in other
comprehensive income (loss) on the Consolidated Statement Operation and Comprehensive Loss, and foreign currency
translation adjustments on the Consolidated Statement of Shareholders’ Equity. Assets and liabilities are translated at the
exchange rates as of the balance sheet date. Revenue and expenses are translated using the average exchange rates during
the period. Equity transactions are translated at the historical exchange rates. The Company’s foreign exchange exposure is
not material to the Company’s consolidated financial condition.
Accounting Pronouncements Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2023-07 “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures”. The ASU
requires interim and annual disclosure of significant segment expenses that are regularly provided to the chief operating
decision-maker (“CODM”) and included within the reported measure of a segment’s profit or loss, requires interim
disclosures about a reportable segment’s profit or loss and assets that are currently required annually, requires disclosure of
the position and title of the CODM, clarifies circumstances in which an entity can disclose multiple segment measures of
profit or loss and contains other disclosure requirements. This authoritative guidance is effective for the Company starting
in the fiscal year ended December 31, 2024 for annual periods and in the first quarter of the fiscal year ending December
31, 2025 for interim periods, with early adoption permitted. The Company adopted this new standard on December 31,
2024. The new standard has not had a material impact on the Company’s consolidated financial statements; however, we
have provided additional details and disclosures under the new guidance in Note 4.
Accounting Pronouncements Issued But Not Yet Adopted
In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740) - Improvements to Income Tax
Disclosures”. The ASU requires greater disaggregation of income tax disclosures primarily on the income tax rate
reconciliation and income taxes paid. This authoritative guidance will be effective for the Company starting in the fiscal
year ending December 31, 2025, with early adoption permitted. The Company is currently evaluating the effect of this new
standard on the Company’s disclosures.
In November 2024, the FASB issued ASU No. 2024-03 “Income Statement (Subtopic 220-40) - Reporting
Comprehensive Income - Expense Disaggregation Disclosures”. The ASU requires disaggregated disclosure of income
statement expenses, primarily on disaggregation of certain expense captions into specified categories in disclosures within
the footnotes to the financial statements. This authoritative guidance will be effective for the Company starting in the fiscal
year ending December 31, 2027 for annual periods and in the first quarter of the fiscal year ending December 31, 2028 for
interim periods, with early adoption permitted. The Company is currently evaluating the effect of this new standard on the
Company’s disclosures.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-13
(2) Fair Value of Financial Instruments
In accordance with ASC 820 “Fair Value Measurements and Disclosures”, the Company defines its’s fair value
hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that
may be used to measure fair value, in the following:
•
Level 1 Pricing inputs are quoted prices available in active markets for identical investments as of the
reporting date.
•
Level 2 Pricing inputs are quoted for similar investments, or inputs that are observable, either directly or
indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes
investments valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.
•
Level 3 Pricing inputs are unobservable for the investment; that is, the inputs reflect the reporting entity’s
own assumptions about the assumptions market participants would use in pricing the asset or liability.
The Company’s fair value hierarchy for its cash equivalents and marketable securities as of December 31, 2024 and
2023, respectively, was as follows:
December 31, 2024
Level 1
Level 2
Level 3
Total
Money market securities ...................................................... $
112 $
— $
— $
112
Commercial paper ................................................................
—
10,633
—
10,633
U.S. treasuries ......................................................................
—
9,192
—
9,192
Federal agency notes ............................................................
—
5,317
—
5,317
Total .............................................................................. $
112 $
25,142 $
— $
25,254
December 31, 2023
Level 1
Level 2
Level 3
Total
Money market securities ...................................................... $
1,515 $
— $
— $
1,515
Commercial paper ................................................................
—
14,622
—
14,622
U.S. treasuries ......................................................................
—
5,953
—
5,953
Federal agency notes ............................................................
—
998
—
998
Total .............................................................................. $
1,515 $
21,573 $
— $
23,088
The fair value maturities of the Company’s cash equivalents and marketable securities as of December 31, 2024 are
as follows:
Maturities by Period
Less than
1-5
5-10
More than
Total
1 year
years
years
10 years
Cash equivalents and marketable securities .... $
25,254 $
25,254 $
— $
— $
—
(3) Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 “Revenue Recognition” by applying the following
steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligation(s) in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligation(s) in the contract.
Step 5: Recognize when (or as) the entity satisfies the performance obligation(s).
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-14
The Company derives its revenue primarily from software subscriptions and software development services.
Applicable revenue recognition criteria are considered separately for each performance obligation as follows:
•
Subscription revenue consists primarily of revenue earned from subscription fees for access to the Company’s
SaaS platform and products and, to a lesser extent, licensing fees for software products. The majority of
subscription contracts are recurring, paid in advance and recognized over the term of the subscription, which is
typically one to three years.
•
Service revenue consists primarily of revenue earned from the performance of software development services
and, to a lesser extent, professional services. The majority of software development contracts are structured as
time and materials agreements. Revenue for services is generally recognized as the services are performed.
Billing for services rendered generally occurs within one month after the services are provided.
Customer arrangements may contain multiple deliverables such as software platform subscriptions, software product
subscriptions, and professional services. Subscriptions and services offered are usually distinct performance obligations.
When they are not capable of being distinct, they are combined with other subscriptions or services until a distinct
performance obligation is identified. To determine the transaction price, management considers the terms of the contract
and the Company’s customary business practices. Some contracts may contain variable consideration. In those cases,
management estimates the amount of variable consideration based on the sum of probability-weighted amounts in a range
of possible consideration amounts. As part of this assessment, management evaluates whether any of the variable
consideration is constrained and if it is, it is not included in the transaction price. The consideration is allocated between
distinct performance obligations based on their stand-alone selling prices. When the standalone selling prices are not
directly observable, management makes estimates based on reasonably available information, including market conditions,
specific factors affecting the Company, and information about the customer. The Company recognizes the revenue
associated with each performance obligation as the obligation is fulfilled, which for subscriptions is typically recognized
ratably over time and for services is typically recognized when they are performed.
All revenue recognized in the Consolidated Statements of Operations is considered to be revenue from contracts with
customers.
The following table provides information about disaggregated revenue by major target market in the Company’s
single reporting segment:
Year Ended December 31,
2024
2023
Commercial:
Subscription ................................................................................................... $
21,218 $
17,773
Service ...........................................................................................................
1,308
1,042
Total Commercial ................................................................................... $
22,526 $
18,815
Government:
Subscription ................................................................................................... $
1,200 $
1,200
Service ...........................................................................................................
14,692
14,836
Total Government ...................................................................................
15,892
16,036
Total ........................................................................................................ $
38,418 $
34,851
The Company has contract assets from contracts with customers that are classified as “trade accounts receivable” in
the Consolidated Balance Sheets. See Note 7 for more information about trade accounts receivable.
The Company has contract assets from capitalized contract acquisition costs that are classified as “other current
assets” and “other assets” in the Consolidated Balance Sheet. These contract acquisition costs are recognized in proportion
to the revenue recognized from the contract they are associated with.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-15
The following table provides information about contract assets:
December 31, December 31,
2024
2023
Contract acquisition costs, current ......................................................................... $
38 $
113
Contract acquisition costs, long-term .....................................................................
—
9
Total ................................................................................................................ $
38 $
122
The Company has contract liabilities from contracts with customers that are classified as “deferred revenue” in the
Consolidated Balance Sheets. Deferred revenue consists of billings in advance for subscriptions and services for which the
performance obligation has not been satisfied.
The following table provides information about contract liabilities:
December 31, December 31,
2024
2023
Deferred revenue, current ....................................................................................... $
4,020 $
5,853
Deferred revenue, long-term ..................................................................................
2
7
Total ................................................................................................................ $
4,022 $
5,860
The Company recognized $5,725 of revenue during the year ended December 31, 2024 that was included in the
contract liability balance as of December 31, 2023.
The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially
unsatisfied was $25,215 and $31,798, as of December 31, 2024 and 2023, respectively. As of December 31, 2024, the
Company expects $20,171 of the $25,215 to be recognized as revenue during 2025.
(4) Segment Information
Significant Segment Expenses
The Company derives its revenue from a single reporting segment: product digitization solutions. Revenue is
generated in this segment primarily through software subscriptions and software development services. The Company
manages its business activities on a consolidated basis. In addition, the Chief Executive Officer of the Company, as the
chief operating decision-maker (“CODM”), reviews the Company’s operating results and makes decisions to allocate
resources based on consolidated financial information. As such, the Company has one single reportable segment. The
CODM uses consolidated net income (loss) as a performance measure and total consolidated assets as an asset measure, to
assess performance of the company, to allocate working capital, and to monitor budget versus actual results.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-16
The following table illustrates reported segment revenue, segment profit and loss, and significant segment expenses.
Year Ended December 31,
2024
2023
Revenue:
Subscription ................................................................................................... $
22,418 $
18,973
Service ............................................................................................................
16,000
15,878
Total revenue ..........................................................................................
38,418
34,851
Cost of revenue:
Subscription (1) ...............................................................................................
2,959
2,975
Service (1) ........................................................................................................
6,628
7,252
Amortization expense on acquired intangible assets ......................................
4,592
4,459
Total cost of revenue ...............................................................................
14,179
14,686
Operating expenses
Cash compensation ........................................................................................
38,997
40,471
Stock-based compensation .............................................................................
9,323
10,032
Professional services and consultants ............................................................
7,757
7,303
Software and hardware ..................................................................................
3,538
3,581
Depreciation and amortization .......................................................................
2,104
2,582
Impairment of lease right of use assets and leasehold improvements ............
—
250
Other segment items (2) ..................................................................................
3,827
4,153
Total operating expenses .........................................................................
65,546
68,372
Operating loss ........................................................................................................
(41,307)
(48,207)
Other income, net ..................................................................................................
2,341
2,452
Provision for income taxes ....................................................................................
(44 )
(204 )
Net loss ................................................................................................... $
(39,010) $
(45,959)
(1) Cost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets.
(2) Other segment items include training and travel expenses, recruiting expenses, rent and facility expenses, bad debt
expenses and other miscellaneous costs.
Geographic Information
The Company markets its products in the U.S. and in non-U.S. countries through its sales personnel and partners.
Revenue by geographic area, based upon the “bill-to” location, was as follows:
Year Ended December 31,
2024
2023
Domestic .................................................................................................................... $
10,195 $
11,380
International (1) ...........................................................................................................
28,223
23,471
Total .................................................................................................................... $
38,418 $
34,851
(1) Revenue from the Central Banks is classified as international revenue. Reporting revenue by country for this customer
is not practicable.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-17
Major Customers
The following customers accounted for 10% or more of revenue:
Year Ended December 31,
2024
2023
Customer A ...........................................................................................................
41%
46%
Customer B ...........................................................................................................
15 %
*
Customer C ............................................................................................................
14%
21%
Long-lived tangible assets by geographical area
Long-lived tangible assets by geographic area were as follows:
December 31, December 31,
2024
2023
United States .......................................................................................................... $
1,026 $
1,535
Europe ....................................................................................................................
14
35
Total ................................................................................................................ $
1,040 $
1,570
(5) Stock-Based Compensation
Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These
awards include restricted stock awards, restricted stock units, and performance restricted stock units.
Stock-based compensation expense related to internal labor is capitalized to software and patent costs based on direct
labor hours charged to capitalized software and patent costs.
Determining Fair Value
Restricted Stock Awards
The fair value of restricted stock awards (“RSA”) that vest upon meeting a service condition is based on the fair
market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-
line basis over the service period of the award, which is generally three to four years for employee grants
and one to three years for director grants.
Restricted Stock Units
The fair value of restricted stock unit (“RSU”) awards that vest upon meeting a service condition is based on the fair
market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-
line basis over the service period of the award, which is generally three to four years for employee grants.
Performance Restricted Stock Units
The fair value of performance restricted stock unit (“PRSU”) awards that vest upon meeting a service condition and a
performance condition, such as the Company exceeding a future annual recurring revenue target, is determined based on the
fair market value of the Company’s common stock on the date of the grant (measurement date), adjusted for probability of
achievement of the performance criteria as of each reporting date, and is recognized on a straight-line basis over the service
period of the award, which is generally three years for employee grants. The probability of achievement is subject to
judgment, and could change from period to period, impacting the amount of expense to be recognized.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-18
The fair value of performance restricted stock units awards that vest upon meeting a service condition and a market
condition, such as the Company exceeding shareholder returns as compared to an index of peer companies, is determined on
the date of grant (measurement date) using the Monte Carlo valuation model. The Company recognizes the fair value of the
award on a straight-line basis over the service period of the award, which is generally three years for employee grants.
The following inputs are used in the Monte Carlo valuation model to estimate the fair value:
Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the
grant.
Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the
historical volatility of its common stock based on historical prices over the most recent period commensurate with
the term of the award.
Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for
bonds with a maturity commensurate with the term of the award.
Monte Carlo Valuation Inputs:
Year Ended December 31,
2024
2023
Stock price ........................................................................................................... $
36.64 $
22.37
Expected volatility ...............................................................................................
66.3 %
74.7 %
Risk-free interest rate ...........................................................................................
4.3 %
4.3%
Stock-based Compensation
Year Ended December 31,
2024
2023
Stock-based compensation:
Cost of revenue .............................................................................................. $
706 $
1,126
Sales and marketing .......................................................................................
2,788
2,640
Research, development and engineering ........................................................
2,522
2,962
General and administrative ............................................................................
4,013
4,430
Stock-based compensation expense ......................................................................
10,029
11,158
Capitalized to software and patent costs ........................................................
30
63
Total stock-based compensation ........................................................................... $
10,059 $
11,221
The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards
granted under the Company’s stock incentive plans:
December 31, December 31,
2024
2023
Total unrecognized compensation costs ................................................................. $
16,226 $
15,370
Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.
The Company expects to recognize the total unrecognized compensation costs as of December 31, 2024 for all non-
vested stock-based awards over weighted average periods through December 31, 2028 as follows:
RSAs
RSUs
PRSUs
Weighted average period (in years) ......................................
1.01
1.33
1.32
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-19
As of December 31, 2024, under the Company’s stock incentive plan, an additional 1,274 shares remained available
for future grants.
The Company issues new shares upon grants of RSAs and vesting of RSU and PRSU awards.
Restricted Stock Awards Activity
The following table presents the unvested balance of RSA activity:
Weighted
Average
Number of
Grant Date
Shares
Fair Value
Unvested balance, December 31, 2022 ..................................................................
196 $
32.06
Granted ...........................................................................................................
45 $
22.10
Vested .............................................................................................................
(130 ) $
30.18
Forfeited ..........................................................................................................
(6 ) $
34.89
Unvested balance, December 31, 2023 ..................................................................
105 $
29.89
Granted .............................................................................................................
45 $
28.37
Vested ..............................................................................................................
(84 ) $
29.20
Forfeited ...........................................................................................................
(7 ) $
27.57
Unvested balance, December 31, 2024 ...................................................................
59 $
29.98
The fair value of RSAs vested is as follows:
Year Ended December 31,
2024
2023
Fair value of RSAs vested ..................................................................................... $
2,234 $
3,273
Restricted Stock Units Activity
The following table presents the unvested balance of RSU awards activity:
Weighted
Average
Number of
Grant Date
Units
Fair Value
Unvested balance, December 31, 2022 ..................................................................
370 $
24.77
Granted ...........................................................................................................
298 $
23.20
Vested .............................................................................................................
(161 ) $
24.46
Forfeited ..........................................................................................................
(65 ) $
25.17
Unvested balance, December 31, 2023 ..................................................................
442 $
23.77
Granted .............................................................................................................
228 $
35.29
Vested ..............................................................................................................
(197 ) $
26.86
Forfeited ...........................................................................................................
(67 ) $
26.58
Unvested balance, December 31, 2024 ...................................................................
406 $
28.27
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-20
The fair value of RSU awards vested is as follows:
Year Ended December 31,
2024
2023
Fair value of RSU awards vested .......................................................................... $
5,747 $
4,893
Performance Restricted Stock Units Activity
The following table presents the unvested balance of PRSU awards activity:
Weighted
Average
Number of
Grant Date
Units
Fair Value
Unvested balance, December 31, 2021 ...................................................................
— $
—
Granted ...........................................................................................................
73 $
31.93
Vested .............................................................................................................
— $
—
Forfeited ..........................................................................................................
(6 ) $
32.02
Unvested balance, December 31, 2022 ..................................................................
67 $
31.92
Change in units based on performance expectations ........................................
(6 ) $
32.02
Granted ...........................................................................................................
134 $
27.75
Vested ..............................................................................................................
(2 ) $
32.02
Forfeited ...........................................................................................................
(1 ) $
32.02
Unvested balance, December 31, 2023 ..................................................................
192 $
29.01
Change in units based on performance expectations ........................................
30 $
22.37
Granted .............................................................................................................
73 $
36.77
Vested ..............................................................................................................
(60 ) $
22.37
Forfeited ...........................................................................................................
(20 ) $
34.17
Unvested balance, December 31, 2024 ...................................................................
215 $
32.08
The fair value of PRSU awards vested is as follows:
Year Ended December 31,
2024
2023
Fair value of PRSU awards vested ........................................................................ $
2,370 $
54
(6) Earnings Per Share
The Company calculates basic and diluted earnings per share in accordance with ASC 260 “Earnings Per Share,”
using the treasury stock method.
Basic earnings per share excludes dilution and is calculated by dividing earnings by the weighted-average number
of shares outstanding for the period. Diluted earnings per share is calculated by dividing earnings by the weighted-average
number of shares, as adjusted for the potentially dilutive effect of unvested RSUs and PRSUs. The dilutive effect of
unvested RSUs and PRSUs is determined using the treasury stock method. RSAs are included in shares outstanding on the
date of grant.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-21
The following table reconciles earnings (loss) per share:
Year Ended December 31,
2024
2023
Basic Earnings (Loss) per Share:
Net loss — basic .................................................................................................... $
(39,010) $
(45,959 )
Weighted average shares outstanding — basic .....................................................
21,261
20,322
Basic loss per share ........................................................................................ $
(1.83 ) $
(2.26 )
Diluted Earnings (Loss) per Share:
Net loss — diluted ................................................................................................. $
(39,010) $
(45,959 )
Weighted average shares outstanding — diluted ..................................................
21,261
20,322
Diluted loss per share ..................................................................................... $
(1.83 ) $
(2.26 )
The following table indicates the common stock equivalents related to unvested RSUs and PRSUs that were anti-
dilutive and excluded from diluted earnings (loss) per share calculations:
Year Ended December 31,
2024
2023
Anti-dilutive shares due to net loss .......................................................................
102
134
(7) Trade Accounts Receivable
Trade Accounts Receivable
Trade accounts receivables are recorded at the contractual or invoiced amount.
December 31, December 31,
2024
2023
Trade accounts receivable, current ......................................................................... $
6,563 $
5,947
Trade accounts receivable, long-term .....................................................................
80
9
Allowance for doubtful accounts ...........................................................................
(151)
(134)
Trade accounts receivable, net ........................................................................ $
6,492 $
5,822
Unpaid deferred revenue included in trade accounts receivable ............................ $
2,590 $
2,073
Allowance for Doubtful Accounts
The Company’s accounts receivables are subject to concentrations of credit risk. The Company maintains an
allowance for its doubtful accounts receivable to reflect any estimated credit losses. The allowance is established in
accordance with the current expected credit loss model, which requires the estimation of expected credit losses over the
contractual life of financial assets. The allowance is calculated using a forward-looking probability-weighted approach
based on historical loss experience, current economic conditions, and reasonable and supportable forecasts. The Company
records the allowance in “general and administrative” expense in the Consolidated Statements of Operations, up to the
amount of revenue recognized to date for each account. Any incremental allowance is recorded as an offset to “deferred
revenue” in the Consolidated Balance Sheets. Account receivables are written off and charged against the recorded
allowance when the Company has exhausted collection efforts without success.
Unpaid Deferred Revenue
The unpaid deferred revenue that is included in trade accounts receivable is billed in accordance with the provisions
of the contracts with the Company’s customers.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-22
Major Customers
The following customers accounted for 10% or more of trade accounts receivable, net:
December 31, December 31,
2024
2023
Company A ............................................................................................................
47 %
56 %
Company B ............................................................................................................
12 %
*
Company C .............................................................................................................
*
13%
*
Less than 10%
(8) Property and Equipment
Property and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred.
Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives
of the assets, generally two to ten years. Leasehold improvements are amortized using the straight-line method over the
shorter of the estimated useful life or the lease term.
December 31, December 31,
2024
2023
Office furniture and fixtures .................................................................................. $
63 $
1,435
Software .................................................................................................................
5,476
5,497
Equipment ..............................................................................................................
2,566
2,472
Leasehold improvements .......................................................................................
203
1,861
Gross property and equipment ........................................................................
8,308
11,265
Less accumulated depreciation ..............................................................................
(7,268 )
(9,695 )
Property and equipment, net ........................................................................... $
1,040 $
1,570
(9) Goodwill
Balance at December 31, 2022.................................................................................................................. $
8,229
Currency translation adjustments ......................................................................................................
412
Balance at December 31, 2023 ................................................................................................................. $
8,641
Currency translation adjustments ......................................................................................................
(109)
Balance at December 31, 2024 ................................................................................................................. $
8,532
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-23
(10) Intangibles
Amortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives
of the assets.
Estimated Life December 31, December 31,
(years)
2024
2023
Capitalized patent costs .........................................................
~17
$
9,174 $
9,231
Intangible assets acquired:
Purchased intellectual property ......................................
10
250
250
Developed technology ....................................................
5
22,504
22,836
Customer relationships ...................................................
10
10,754
10,913
Gross intangible assets ..........................................................
42,682
43,230
Accumulated amortization .............................................
(20,491 )
(14,772 )
Intangibles, net ......................................................................
$
22,191 $
28,458
The amortization of capitalized patent costs, purchased intellectual property, and developed technology is recorded in
“cost of revenue” and the amortization of customer relationships is recorded in “operating expenses” in the Consolidated
Statements of Operations.
Amortization expense on intangible assets was as follows:
Year Ended December 31,
2024
2023
Amortization expense ........................................................................................... $
6,233 $
6,097
For intangible assets recorded at December 31, 2024, the estimated future aggregate amortization expense for the
years ending December 31, 2025 through December 31, 2029 is as follows:
Amortization
As of December 31, 2024
Expense
2025 ....................................................................................................................................................... $
6,099
2026 .......................................................................................................................................................
6,068
2027 .......................................................................................................................................................
1,536
2028 .........................................................................................................................................................
1,525
2029 .........................................................................................................................................................
1,495
(11) Leases
The Company accounts for leases in accordance with ASC 842, “Leases.”
The Company entered into a sublease agreement and lease extension agreement for office space in Beaverton,
Oregon in February 2022 to move the Company’s corporate headquarters. The term of the sublease and lease extension runs
through September 2030. The remaining rent payments as of December 31, 2024 were $7,796 plus operating expenses,
payable in monthly installments. The first 26 months of rent payments and operating expenses were abated to cover the
remaining lease term on the Company’s former corporate headquarters.
The lease term of the Company’s former corporate headquarters in Beaverton, Oregon ended in March 2024, with no
remaining rent payments as of December 31, 2024. The Company stopped using this office space as its corporate
headquarters in March 2022.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-24
All of the Company’s leases are operating leases. The following table provides additional details of leases presented
in the Consolidated Balance Sheets:
December 31, December 31,
2024
2023
Lease right of use assets ......................................................................................... $
3,659 $
4,017
Lease liabilities, current ......................................................................................... $
781 $
582
Lease liabilities, long-term ..................................................................................... $
5,213 $
5,994
Weighted-average remaining life (in years) ..........................................................
5.7
6.5
Weighted-average discount rate ............................................................................
9 %
9 %
The current lease liabilities are included in “accounts payable and other accrued liabilities” in the Consolidated
Balance Sheets.
The carrying value of the lease right of use assets is evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. No impairment was recorded for
the twelve months ended December 31, 2024. An “impairment of lease right of use assets and leasehold improvements” of
$250 was recorded in the Consolidated Statements of Operations for the twelve months ended December 31, 2023, related
to the Company’s former corporate headquarters. The impairment charge was determined by comparing the carrying value
of the assets to the net present value of estimated cash flows from the future sublease of the office space over the remaining
lease term.
Operating lease expense is included in “operating expenses” in the Consolidated Statements of Operations and in
“cash flows from operating activities” in the Consolidated Statements of Cash Flows. The operating leases include variable
lease payments, which are included in operating lease expense. Additional details of the Company’s operating leases are
presented in the following table:
Year Ended December 31,
2024
2023
Operating lease expense ........................................................................................ $
1,482 $
1,556
Cash paid for operating leases .............................................................................. $
1,663 $
1,151
The table below reconciles the aggregate cash payment obligations for the next five years and total of the remaining
years for the operating lease liability recorded in the Consolidated Balance Sheet as of December 31, 2024:
Cash
Payment
As of December 31, 2024
Obligations
2025 ......................................................................................................................................................... $
1,317
2026 .........................................................................................................................................................
1,356
2027 .........................................................................................................................................................
1,397
2028 .........................................................................................................................................................
1,296
2029 .........................................................................................................................................................
1,389
Thereafter ................................................................................................................................................
1,066
Total lease payments .......................................................................................................................
7,821
Imputed interest .......................................................................................................................................
(1,827)
Total minimum lease payments ...................................................................................................... $
5,994
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-25
(12) Shareholders’ Equity
Preferred Stock
In June 2008, the Board of Directors authorized 2,500 shares of preferred stock, par value $0.001 per share. The
Board of Directors has the authority to issue the undesignated preferred stock in one or more series and to determine the
powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly
unissued series of undesignated preferred stock and to fix the number of shares constituting any series and the designation
of such series, without any further vote or action by the shareholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change of control of the Company without further action by shareholders and may
adversely affect the voting and other rights of the holders of common stock.
The Board of Directors authorized 10 shares of Series A Redeemable Nonvoting Preferred stock (“Series A
Preferred”) that were issued to certain executive officers at the time of formation. The Series A Preferred has no voting
rights, except as required by law, and may be redeemed at the option of the Company’s Board of Directors at any time.
The Series A Preferred is redeemable based on the stated fair value of $5.00 per share. The Series A Preferred has no
dividend rights and no rights to the undistributed earnings of the Company.
Common Stock
In June 2008, the Board of Directors authorized 50,000 shares of common stock, par value $0.001 per share. The
holders of Digimarc common stock are entitled to one vote for each share held of record on all matters submitted to a vote
of its shareholders, including the election of directors. Subject to preferences that may be granted to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably those dividends as may be declared by the Board of
Directors out of funds legally available for such purpose, as well as any distributions to the Company’s shareholders. In the
event of the Company’s liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all
of the Company’s assets remaining after payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive or other subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable.
Registered Direct Offering
On February 24, 2024, the Company entered into purchase agreements with certain investors providing for the
issuance and sale by the Company of 929 common shares in a registered direct stock offering. The common shares were
offered at a price of $35.00 per share, and the gross cash proceeds to the Company were $32,500. The Company incurred
$282 of legal costs related to the offering. The closing of the registered direct offering occurred on February 27, 2024.
Stock Incentive Plan
In March 2018, the Company’s Board of Directors approved the 2018 Incentive Plan (“2018 Plan”) which was later
approved by the Company’s shareholders at the Company’s 2018 Annual Meeting of Shareholders in April 2018. The 2018
Plan replaced the 2008 Incentive Plan (“2008 Plan”). The 2018 Plan provides for the grant of incentive and, stock
appreciation rights, stock awards, restricted stock awards, restricted stock units, performance shares, performance units, and
other stock or cash-based awards, which may be granted to officers, directors, employees, consultants, agents, advisors and
independent contractors who provide services to the Company and its affiliated companies.
In May 2023, the 2018 Plan was modified as approved by the Company’s shareholders at the Company’s 2023
Annual Meeting of Shareholders. The amendment added 1,200 shares to the pool of shares authorized for issuance.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-26
The 2018 Plan authorizes the issuance of 2,200 shares of common stock. In addition, up to 770 shares of common
stock subject to awards outstanding under the 2008 Plan became available for issuance under 2018 Plan to the extent that
those shares cease to be subject to the awards (as a result of, for example, expiration, cancellation or forfeiture of the
award). The shares authorized under the 2018 Plan are subject to adjustment in the event of a stock split, stock dividend,
recapitalization or similar event. Shares issued under the 2018 Plan will consist of authorized and unissued shares or shares
held by the Company as treasury shares. If an award granted under the 2018 Plan lapses, expires, terminates or is forfeited
or surrendered without having been fully exercised or without the issuance of all the shares subject to the award, the shares
covered by that award will again be available for issuance under the 2018 Plan. Shares that are (i) tendered by a participant
or retained by the Company as payment for the purchase price of an award or to satisfy tax withholding obligations or
(ii) covered by an award that is settled in cash, or in some manner that some or all of the shares covered by the award are
not issued, will again be available for issuance under the 2018 Plan. In addition, awards granted as substitute awards in
connection with acquisition transactions will not reduce the number of shares authorized for issuance under the 2018 Plan.
(13) Defined Contribution Plan
The Company sponsors an employee retirement savings plan (the “Plan”) which qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue Code. The Plan combines both an employee savings plan and
company matching plan into one plan under Section 401(k), including a 401(k) Roth option. Employees become eligible to
participate in the Plan at the beginning of the month following the employee’s hire date. Employees may contribute up to
75% of their pay to the Plan, subject to the limitations of the Internal Revenue Service Code.
The Company made matching contributions in the aggregate amount as follows:
Year Ended December 31,
2024
2023
Matching contributions ......................................................................................... $
1,234 $
1,217
(14) Other Income
The following table provides information about other income, net:
Year Ended December 31,
2024
2023
Interest income ...................................................................................................... $
1,818 $
1,680
Refundable tax credit ............................................................................................
550
684
Foreign currency gains (losses) .............................................................................
(27 )
96
Other income (loss) ...............................................................................................
—
(8 )
Total other income, net .................................................................................. $
2,341 $
2,452
(15) Income Taxes
The provision for income taxes reflects current taxes and deferred taxes. The effective tax rate for each of the years
ended December 31, 2024 and 2023 was 0%. The Company continues to provide for a valuation allowance to offset its net
deferred tax assets until such time it is more likely than not the tax assets or portions thereof will be realized.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-27
Components of loss before income taxes are as follows:
Year Ended December 31,
2024
2023
Domestic ............................................................................................................... $
(27,044 ) $
(35,039 )
International ..........................................................................................................
(11,922 )
(10,716 )
Loss before income taxes ............................................................................... $
(38,966 ) $
(45,755 )
Components of the provision (benefit) for income taxes allocated to continuing operations include the following:
Year Ended December 31,
2024
2023
Current:
Federal ............................................................................................................ $
5 $
(141 )
State ................................................................................................................
(13)
(9 )
Foreign ...........................................................................................................
(36)
(37 )
Sub-total ................................................................................................. $
(44 ) $
(187 )
Deferred:
Federal ............................................................................................................ $
— $
(17 )
State ................................................................................................................
—
—
Foreign ...........................................................................................................
—
—
Sub-total ................................................................................................. $
— $
(17 )
Total ............................................................................................................... $
(44 ) $
(204 )
The reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows:
Year Ended
Year Ended
December 31,
December 31,
2024
%
2023
%
Income taxes computed at statutory rates .................. $
8,183
(21)% $
9,609
(21)%
(Increases) decreases resulting from:
Change in valuation allowance ..........................
(9,319)
24%
(11,716)
26%
NOL surrendered for refundable tax credit ........
(1,355)
4%
(1,607)
4%
Foreign research deductions and credits ............
650
(2)%
803
(2)%
Federal and state research and experimentation
credits .............................................................
1,288
(3)%
1,412
(3)%
State income taxes, net of federal tax benefit .....
(139)
—%
468
(1)%
Other ..................................................................
648
(2)%
827
(3)%
Total ........................................................... $
(44 )
— % $
(204 )
— %
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-28
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of significant
items comprising the Company’s deferred tax assets and deferred tax liabilities are as follows:
December 31, December 31,
2024
2023
Deferred tax assets:
Federal and state net operating losses ............................................................. $
79,856 $
77,201
Federal and state research and experimentation credits ..................................
13,610
12,406
Research and experimental costs .....................................................................
12,806
9,458
Stock based compensation ..............................................................................
1,822
1,474
ASC 842 - lease liabilities ...............................................................................
1,303
1,468
Accrued compensation ....................................................................................
324
610
Fixed asset differences ....................................................................................
191
185
Intangible asset differences .............................................................................
4
—
Other ...............................................................................................................
264
59
Total gross deferred tax assets .................................................................
110,180
102,861
Less valuation allowance ................................................................................
(104,361)
(95,256 )
Net deferred tax assets ............................................................................. $
5,819 $
7,605
Deferred tax liabilities:
Patent expenditures ......................................................................................... $
(888) $
(1,096 )
ASC 842 - right of use assets ..........................................................................
(795)
(897 )
Fixed asset differences ....................................................................................
(4)
(9 )
Intangible asset differences .............................................................................
(4,132)
(5,603 )
Total gross deferred tax liabilities ........................................................... $
(5,819 ) $
(7,605 )
Total net deferred tax assets and liabilities .............................................. $
— $
—
The Company had a valuation allowance of $104,361 and $95,256 on deferred tax assets as of December 31, 2024
and 2023, respectively, an increase of $9,105 during the year ended December 31, 2024.
As of December 31, 2024, the Company has federal, state, and foreign net operating loss carryforwards
of $257,535, $173,657, and $70,922 respectively, which have a carryforward of 5 years to indefinite depending on the
jurisdiction.
As of December 31, 2024, the Company has federal research and experimental tax credits of $14,746, which have a
carryforward of 20 years.
A summary reconciliation of the Company’s uncertain tax positions is as follows:
Year Ended December 31,
2024
2023
Beginning balance ................................................................................................. $
1,063 $
1,046
Addition for current year tax positions ...........................................................
85
94
Addition for prior year tax positions ..............................................................
—
—
Reduction for prior year positions ..................................................................
(11)
(77)
Reduction for prior year positions resolved during the current year ..............
—
—
Ending balance ...................................................................................................... $
1,137 $
1,063
As of December 31, 2024, the total unrecognized tax benefits, if recognized, would not materially affect the
Company’s effective tax rate.
DIGIMARC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands, except per share data)
F-29
The Company records accrued interest and penalties associated with uncertain tax positions in the “provision for
income taxes” in the Consolidated Statements of Operations. For the years ended December 31, 2024 and 2023, the
Company recognized accrued interest and penalties associated with uncertain tax positions of $0 and $0, respectively. The
Company does not anticipate any of its unrecognized benefits will significantly increase or decrease within the next 12
months.
The Company’s open tax years subject to examination in the U.S. federal jurisdiction are 2021 through 2023, in
applicable state jurisdictions for the tax years 2021 through 2023, and in applicable foreign jurisdictions for tax year 2023.
To the extent allowed by law, the taxing authorities may have the right to examine prior periods where net operating losses
or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or tax
credit carryforward.
(16) Commitments and Contingencies
Certain of the Company’s product and services agreements include an indemnification provision for claims from
third parties relating to the Company’s intellectual property. Such indemnification provisions are accounted for in
accordance with ASC 450. To date, there have been no claims made under such indemnification provisions.
The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of
business. At this time, the Company does not believe that the resolution of any such matters will have a material adverse
effect on its financial position, results of operations or cash flows.
(17) Subsequent Events
On February 26, 2025, the Company announced a reorganization, which could impact our workforce by up to 90
employees. The reorganization is expected to reduce the Company’s cash expenses by approximately $16,500 on an
annualized basis. The Company expects to incur approximately $3,000 in one-time reorganization costs in the first quarter
of 2025.
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