Digimarc Corporation

Greetings and welcome to the Digimark fourth quarter and fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joel Meyer, Chief Legal Officer. Thank you, Joel. You may begin.

Thank you. Thank you. Welcome to our Q4 conference call. Riley McCormick, our CEO, and Charles Beck, our CFO, are with me on the call. On the call today, we will provide a business update and discuss Q4 and fiscal 2022 financial results. This will be followed by a question and answer forum. We have posted our prepared remarks in the investor relations section of our website and we'll archive this webcast there. Before we begin, Let me remind everyone that today's discussion contains forward-looking statements that have risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Riley will now provide a business update.

Thank you, Joel, and good afternoon, everyone. 2022 is a transformative year for our company. In a bit, Charles will review the financial highlights from the year. I want to spend time on the strategic highlights and how they positioned us in 2023 and beyond. As you all know, we generate revenue through two primary markets, government and commercial. On the government side, we re-signed our contract with the Consortium of the World Central Banks two years before Exbury, extending it out through the end of the decade. We take great pride in our work to deter global currency counterfeiting and are excited to continue our work with our long-standing and deeply valued customers, the central banks. Moreover, this program is a wonderful testament to the power of our technology, our scalability, and our trustworthiness as a partner, not to mention our ability to build and support a massive, mission-critical, multinational, and multi-stakeholder system similar to what we are doing in recycling. On the commercial side, we closed on our acquisition of everything, launched our first products, announced our first major value-added reseller, VAR, repeatedly and publicly proved our ability to make a real impact on the global plastic problem, and signed a multi-year deal with Walmart for an exciting new use case, further strengthening our relationship with the world's largest retailer. We have combined our digital watermarking and product cloud capabilities to form the DigiMark Illuminate platform, and on top of that platform have built four products, DigiMark Engage, DigiMark Validate, DigiMark Recycle, and DigiMark Retail Experience. We also continue to progress product candidates along the rigorous process that all must endure to become launch products, including intense market research to ensure they address large and growing problems, and that illuminates functionality upon which all of our products are built, provide significant technological differentiation. We prioritize product candidates that have forcing functions, network effects, or other powerful drivers of adoption. We have multiple promising product candidates we are currently progressing. Our goal is to digitize the world's products. To accomplish this, we must be easy to begin doing business with and excellent at guiding customers along their DigiMark journey. These simple truths drive everything we do. On the channel sales side, by licensing DigiMark Illuminate to a growing number of VARs, we not only gain quickly scalable and high margin revenues as our VARs go to market with their own products and services built upon our world-leading product digitization platform, We also increase the amount of items that are digitized using our technology. This creates an ever-increasing number of upsell and cross-sell opportunities for both us and our bars. On the direct sales side, by building a growing number of our own accretive products upon the Illuminate platform, we are not only ensuring a customer is able to solve the problem that brought them to us today, but also providing them a frictionless path to solve the problems they want to solve tomorrow. Moreover, because our products are accretive, which means that the standalone value they provide is increased by the adoption of additional DigiMark products, this frictionless path forward not just solves new problems, it compounds returns from all products, existing and new. We are building the product digitization market one product and one bar at a time, solving discrete problems while watching with growing excitement as visionary companies and industry observers begin to understand that by adopting multiple products built on a single platform, our customers can solve for today's and tomorrow's discrete problems while positioning themselves to finally achieve true digital transformation as their products are no longer stranded in the analog world. This is what we mean by being easy to begin doing business with and excellent at guiding customers along their DigiMark journey. This is why we are indifferent as to where our customers decide to begin their DigiMark journey. And this is how we'll digitize the world's products. And in so doing, build a new market we are uniquely positioned to lead due to our one-of-a-kind means of identifying an item, our digital watermark, and the world's most scalable product cloud. A perfect example of this is a comment recently made to us by one of the world's largest CPGs. A current Engage customer, they are looking to dramatically increase their adoption of this product. While they know they can get lower pricing from companies that can provide some of the consumer engagement functionality we are currently providing them, It isn't just our superior functionality that is keeping them moving forward on their DigiMark journey. It's their realization that their journey will include DigiMark Recycle and potentially another DigiMark product in the not-too-distant future. Having all their products on the same platform will provide them a creative value that no stitching together of point solutions, if they were even available, would be able to replicate. This is the power of what we built in 2022. This is what gives us excitement for 2023 and beyond. Looking ahead, I want to provide an update on two of our products, the two I refer to as our top-down drivers of product digitization, because of their ability to quickly advance the market we are building. The first is Retail Experience, which we recently soft-launched and about which more is available on our website. While we are excited for a broader launch, it is in our best interest to work with the industry on this product's rollout. The potential downside of top-down drivers of product digitization is that the very fact they are top-down means we don't always control all aspects of that product's launch. The upside, of course, is that there are top-down drivers encouraging adoption. I would note that a lack of broad publicity about this launch does not mean that there is not ongoing activity nor real intent from interested parties to drive adoption to modernize the retail experience, an experience where watermarks have moved from nice to have to need to have. As stated in our last call, the serviceable addressable market for retail experience is enough to take us well into profitability by itself. The second is recycle. While the same top-down driver give and take that applies to retail experience applies here as well, the two big differences with recycle are we've been actively advancing recycle for almost a year and we are active on multiple continents and with multiple important stakeholders. We believe the per country TAM for Digimark Recycle is well under the eight figures and plan to soon publish recycled pricing on our website to provide requested transparency to multiple important stakeholders. Our activity in two countries, France and Canada, is publicly known. A few weeks ago, the industry gathered in Pertui, France, to learn more about the opportunity to make France the European pilot market for Digimark Recycle. A large CPG announced at this public gathering They are committed to being part of this pilot market at scale, and we are in discussions with multiple other brands and retailers about joining them. The group has set aggressive targets for both the scope and timing of initial adoption, and we stand by ready to assist them in their quest to make a real impact on plastics recycling. We are all aware the world is watching. Stay tuned. Moving to Canada, in Q4, we announced the results of our work with the Circular Plastics Task Force. What I have found most impressive about this group's efforts is that they are proving how quickly a small, nimble, dedicated, and motivated group can move to make a real difference to a large and growing problem. And our wonderful partnership with them continues to deepen. Here again, we expect to have more to say soon. Our work in Canada is also informing our work in other countries that are further behind both France and Canada, but where we hope to apply the learnings we are gaining in Canada to close the time and gap. Before I turn the call over to Charles, I want to talk about our path to profitability. We know that to deliver upon the immense value inherent in what we are building, we need to build a financially sustainable business that can deliver what we fully expect to be able to deliver. This includes making sure we are always investing with great responsibility across all areas of our business. We recently made the very difficult decision to streamline certain areas and reorganize in others, and in so doing parted ways with some wonderful people and talented teammates. This action was neither a reflection of our prospects or the performance of any impacted teammate. Instead, it was a reflection of our knowing that in order to change the world, we must have a durable business. The actions we recently took not only have a big impact in reducing our current cash burn, but importantly take us a big step forward on our path to profitability, something that, based on the size of the markets immediately ahead of us, coupled with the world-class contribution margins we enjoy, is squarely in both our focus and line of sight. I will now turn the call over to Charles to discuss our financial results.