SOURCE: Digimarc Corporation

Digimarc Corporation

February 20, 2014 16:05 ET

Digimarc Reports Fourth Quarter and Full Year 2013 Financial Results

BEAVERTON, OR--(Marketwired - Feb 20, 2014) - Digimarc Corporation (NASDAQ: DMRC) reported financial results for the fourth quarter and fiscal year ended December 31, 2013.

Fourth Quarter 2013 Results
Revenue for the fourth quarter of 2013 totaled $6.8 million compared to $9.3 million in the fourth quarter of 2012. The decrease was primarily due to the end of the scheduled minimum quarterly license fee payments from Intellectual Ventures (IV) in the second quarter of 2013. The comparative decline was partially offset by increased subscription revenue from a full quarter of Attributor's sales in the fourth quarter of 2013 and higher service revenue from the Central Banks.

Operating loss for the fourth quarter of 2013 totaled $3.4 million compared to operating income of $1.9 million in the same quarter a year-ago. The operating results for the fourth quarter of 2013 reflect lower revenue and higher operating costs due to increased investments in the company's product development and sales growth initiatives, as well as the impact of a full quarter of Attributor's operating costs in the fourth quarter of 2013.

Net loss for the fourth quarter of 2013 totaled $1.3 million or $0.19 per diluted share compared to net income of $1.1 million or $0.14 per diluted share in the fourth quarter of 2012. The decrease was due to lower operating income partially offset by a benefit for income taxes in the fourth quarter of 2013.

Full Year 2013 Results
Revenue in 2013 totaled $35.0 million compared to $44.4 million in 2012. The decrease was primarily due to the $8.0 million past due royalties payment received from Verance Corporation in the first quarter of 2012 and the end of the scheduled minimum quarterly license fee payments from IV in the second quarter of 2013. Revenue from IV for these license fees was $12.6 million in 2012 versus $6.8 million in 2013. The comparative decline was partially offset by increased subscription revenue from a full year of Attributor's sales in 2013 and higher service revenue from the Central Banks.

Operating loss in 2013 totaled $2.4 million compared to operating income of $14.6 million in 2012. The decrease reflects lower revenue and higher operating costs due to increased investments in the company's product development and sales growth initiatives, as well as the impact of a full year of Attributor's operating costs in 2013.

Net loss in 2013 totaled $0.5 million or $0.10 per diluted share compared to net income of $8.3 million or $1.12 per diluted share in 2012. The decrease was due to lower operating income partially offset by a benefit for income taxes in 2013.

At December 31, 2013, cash, cash equivalents and marketable securities totaled $35.0 million compared to $39.1 million at December 31, 2012.

Conference Call
Digimarc will hold a conference call later today (Thursday, February 20, 2014) to discuss these results. Management will also provide an update on market conditions, plans for 2014, and execution of strategy. Chairman and CEO Bruce Davis and CFO Charles Beck will host the call starting at 5:00 p.m. Eastern time (2:00 p.m. Pacific time). A question and answer session will follow management's presentation.

The call will be broadcast live via webcast at www.digimarc.com/investors and available for replay through February 27, 2014. The webcast will be archived and available on Digimarc's website at www.digimarc.com/investors/investor-events-and-webcasts.

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

Number: 866-562-9934
Conference ID: 14645381

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

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

Forward-looking Statements
With the exception of historical information contained in this release, the matters described in this release contain various "forward-looking statements." These forward-looking statements include statements and any related inferences regarding increases in subscription revenue, increased investments in product development and sales growth initiatives, and other statements identified by terminology such as "will," "should," "expects," "estimates," "predicts" and "continue" or other derivations of these or other comparable terms. These forward-looking statements are statements of management's opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied from the statements in this release as a result of changes in economic, business and/or regulatory factors. More detailed information about risk factors that may affect actual results will be set forth in the company's Form 10-K for the year ended December 31, 2013 and in subsequent periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date of this release. Except as required by law, Digimarc undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this release.

   
Digimarc Corporation  
Consolidated Income Statement Information  
(in thousands, except per share amounts)  
(Unaudited)  
                         
    Three-Month Information     Twelve-Month Information  
    December 31,     December 31,     December 31,     December 31,  
    2013     2012     2013     2012  
Revenue:                                
  Service   $ 2,650     $ 2,519     $ 11,631     $ 10,792  
  Subscription     1,350       559       5,591       1,481  
  License     2,826       6,236       17,742       32,102  
    Total revenue     6,826       9,314       34,964       44,375  
                                 
Cost of revenue:                                
  Service     1,260       1,373       5,327       5,917  
  Subscription     643       217       2,491       355  
  License     93       58       387       236  
    Total cost of revenue     1,996       1,648       8,205       6,508  
                                 
Gross profit:                                
  Service     1,390       1,146       6,304       4,875  
  Subscription     707       342       3,100       1,126  
  License     2,733       6,178       17,355       31,866  
    Total gross profit     4,830       7,666       26,759       37,867  
                                 
Gross margin:                                
  Service     52 %     45 %     54 %     45 %
  Subscription     52 %     61 %     55 %     76 %
  License     97 %     99 %     98 %     99 %
    Percentage of gross profit to total revenue     71 %     82 %     77 %     85 %
                                 
Operating expenses:                                
  Sales and marketing     1,822       913       6,144       3,827  
  Research, development and engineering     3,450       2,277       12,274       8,741  
  General and administrative     2,635       2,226       9,624       9,457  
  Intellectual property     313       329       1,129       1,248  
    Total operating expenses     8,220       5,745       29,171       23,273  
                                 
Operating income (loss)     (3,390 )     1,921       (2,412 )     14,594  
                                 
Net loss from joint ventures     -       -       -       (1,107 )
Other income, net     28       40       109       179  
                                 
Income (loss) before income taxes     (3,362 )     1,961       (2,303 )     13,666  
                                 
(Provision) benefit for income taxes     2,077       (907 )     1,796       (5,394 )
Net income (loss)   $ (1,285 )   $ 1,054     $ (507 )   $ 8,272  
                                 
Earnings (loss) per common share:                                
Earnings (loss) per common share - basic   $ (0.19 )   $ 0.15     $ (0.10 )   $ 1.16  
Earnings (loss) per common share - diluted   $ (0.19 )   $ 0.14     $ (0.10 )   $ 1.12  
  Weighted average common shares outstanding - basic     6,913       6,791       6,866       6,757  
  Weighted average common shares outstanding - diluted     6,913       6,966       6,866       6,989  
                                 
Cash dividends declared per common share:   $ 0.11     $ 0.11     $ 0.44     $ 0.33  
                                 
                                 
   
Digimarc Corporation  
Consolidated Cash Flow Information  
(in thousands)  
(Unaudited)  
                         
    Three-Month Information     Twelve-Month Information  
    December 31,     December 31,     December 31,     December 31,  
    2013     2012     2013     2012  
Cash flows from operating activities:                                
  Net income (loss)   $ (1,285 )   $ 1,054     $ (507 )   $ 8,272  
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:                                
    Depreciation and amortization of property and equipment     229       156       742       600  
    Amortization and write-off of intangibles     316       172       1,247       385  
    Gain on reversal of contingent merger consideration     -       -       (190 )     -  
    Stock-based compensation     1,283       1,104       4,502       5,256  
    Net loss from joint ventures     -       -       -       1,107  
    Deferred income taxes     (1,069 )     (207 )     (715 )     (284 )
    Tax benefit from stock-based awards     (855 )     1,303       (855 )     3,688  
    Excess tax benefit from stock-based awards     (201 )     (1,243 )     (201 )     (3,044 )
    Increase in allowance for dobutful accounts     23       -       45       -  
  Changes in operating assets and liabilities:                                
      Trade accounts receivable, net     (744 )     (59 )     (1,667 )     (187 )
      Other current assets     235       264       (342 )     219  
      Other assets     (305 )     34       (404 )     201  
      Accounts payable and other accrued liabilities     (250 )     (984 )     124       (228 )
      Deferred revenue     1,431       128       1,694       (384 )
        Net cash provided by (used in) operating activities     (1,192 )     1,722       3,473       15,601  
                                 
Cash flows from investing activities:                                
  Purchase of property and equipment     (112 )     (194 )     (1,644 )     (570 )
  Capitalized patent costs and purchased intellectual property     (274 )     (272 )     (1,098 )     (1,170 )
  Investment in joint ventures, net     -       -       -       (692 )
  Business acquisitions, net of cash acquired     -       (5,092 )     -       (5,092 )
  Sale or maturity of marketable securities     8,283       26,534       55,627       144,214  
  Purchase of marketable securities     (6,404 )     (24,312 )     (54,590 )     (146,444 )
        Net cash provided by (used in) investing activities     1,493       (3,336 )     (1,705 )     (9,754 )
                                 
Cash flows from financing activities:                                
  Purchase of common stock     (968 )     (649 )     (1,822 )     (3,100 )
  Cash dividends paid     (802 )     (783 )     (3,202 )     (2,344 )
  Excess tax benefit from stock-based awards     201       1,243       201       3,044  
        Net cash used in financing activities     (1,569 )     (189 )     (4,823 )     (2,400 )
                                 
        Net increase (decrease) in cash and cash equivalents (1)   $ (1,268 )   $ (1,803 )   $ (3,055 )   $ 3,447  
                                 
                                 
  Cash equivalents and marketable securities at beginning of period     38,111       43,080       39,056       33,378  
  Cash equivalents and marketable securities at end of period     34,964       39,056       34,964       39,056  
(1) Net increase (decrease) in cash, cash equivalents and marketable securities   $ (3,147 )   $ (4,024 )   $ (4,092 )   $ 5,678  
                                 
                                 
 
Digimarc Corporation
Consolidated Balance Sheet Information
(in thousands)
(Unaudited)
         
         
    December 31,   December 31,
    2013   2012
Assets            
  Current assets:            
    Cash and cash equivalents (2)   $ 3,811   $ 6,866
    Marketable securities (2)     25,851     25,403
    Trade accounts receivable, net     5,838     4,216
    Other current assets     1,658     1,016
      Total current assets     37,158     37,501
  Marketable securities (2)     5,302     6,787
  Property and equipment, net     2,395     1,453
  Intangibles, net     6,709     6,721
  Goodwill     1,114     1,114
  Deferred tax assets, net     3,949     3,589
  Other assets     570     166
      Total assets   $ 57,197   $ 57,331
             
Liabilities and Shareholders' Equity            
  Current liabilities:            
    Accounts payable and other accrued liabilities   $ 1,560   $ 1,143
    Deferred revenue     4,218     2,512
      Total current liabilities     5,778     3,655
  Deferred rent and other long-term liabilities     496     673
      Total liabilities     6,274     4,328
             
  Commitments and contingencies            
             
  Shareholders' equity:            
    Preferred stock     50     50
    Common stock     7     7
    Additional paid-in capital     41,498     39,869
    Retained earnings     9,368     13,077
      Total shareholders' equity     50,923     53,003
             
      Total liabilities and shareholders' equity   $ 57,197   $ 57,331
             
             
(2) Aggregate cash, cash equivalents, short- and long-term marketable securities was $34,964 and $39,056 at December 31, 2013 and 2012, respectively.