Digimarc Corporation

Greetings and welcome to the Digimar Corporation first quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode and the floor will be open for questions following the presentation. If you should require assistance throughout the conference, please press star zero to reach a live operator. As a reminder, this conference is being recorded. At this time, it is my pleasure to turn the call over to Joel Meyer. Sir, the floor is yours.

Thank you, Karen. Welcome to our Q1 conference call. Riley McCormack, 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 Q1 2023 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 hello, everyone. 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 that we do. We have two distinct ways of going to market. On the direct sales side, by building a growing number of our own accretive products upon our world-leading product digitization engine, the DigiMark 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 for all products existing and new. On the channel sales side, by licensing the DigiMark Illuminate platform to a growing number of value-added resellers or VARs, We not only gain quickly scalable and high margin revenue 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 VARs. You might recognize these words as they are verbatim from our last earnings call. These words describe where we are going and how we are going to get there and thus are worth repeating. especially as I appreciate that we are a much different company than we were just a short while ago. Last quarter, after providing this preamble, I spent the rest of the call discussing a few of our products. This quarter, I want to spend time discussing our platform because both technologically and commercially, our DigiMark Illuminate platform is quite literally foundational to everything we do. As mentioned earlier, each of our products is built upon our DigiMark Illuminate platform. This allows each of them to benefit from the unique and powerful capabilities that comprise our best-in-class product digitization platform, and also allows them to add a creative value to each other. These two facts are key contributors to our extremely wide modes, and thus it is our platform that ultimately powers our product success. Moving to our Q1 results, while simply a one-quarter snapshot, the majority of both our new logos and our upsells were Digimark Illuminate customers. including one VAR that signed a six-figure deal. This VAR is a large company and a category leader, and we are excited they have begun their DigiMark journey. We are already in discussions with them about licensing additional capacity as they educate their end customers on the value of product digitization. Q1 also signed another new VAR who came to us in response to one of their competitors having a product that is powered by the DigiMark Illuminate platform, and their realization they need our product digitization hyperscaler to compete. And then, of course, there's the DigiMark Illuminate deal we announced today, a $32 million five-year contract to protect the authenticity of precious metals, critical building materials, and a national deposit return system, or DRS, for recycling. There are five things about this deal I want to highlight. First, of course, is the size of the deal, both in terms of revenue and duration. Charles will give a bit more detail about this contract in a minute, but this deal provides our newest far the ability to use the Digimark Illuminate platform as a key component in three of its products, each of which is targeted at one of the three end markets I just mentioned. Due to our customers' confidence in our platform and their confidence in their ability to build wonderful products on top of our platform, they signed a five-year license for each of their products, rollout of which will occur in a staggered fashion for the rest of this calendar year. Second, there is upside to this contract beyond the $32 million. This upside comes from two different areas, an increase in the amount of capacity needed for any of these three products or an increase in the amount of capacity needed because of the launch of additional products. One such additional product is far enough along to be scoped within the contract, and if it were to proceed, provide meaningful upside to the headline dollar amount. We believe there are likely to be other product opportunities even beyond this fourth product, a view shared by our valued customer. At the risk of understatement, we are excited to partner with them as they continue their DigiMark journey. Third, two of the products covered by this deal, the one protecting the authenticity of precious metals and the one protecting the authenticity of critical building materials, represents the first use of our platform in the security printing market. The security printing market is a greenfield opportunity for us on the commercial side of our business, and one where our moat is not just the unique capabilities of our platform, but the credibility, reputation, and expertise we have earned while working with the world's central banks for these last 24 years. We don't talk a lot about our team working with the central banks because we can't talk a lot about that team or the amazing work they do. But across all of our commercial activities, and especially as we enter the world of security printing, this team's history of absolute excellence provides us a moat as deep and as wide as any other we enjoy. Fourth, the third product covered by this deal, the one guarding the integrity of a national deposit return system, represents our entry into an important and exciting new market adjacency. Our ability to help power a more circular world doesn't begin and end with DigiMark Recycle. Our entry into the quickly growing DRS market has three important implications. It provides synergistic benefits to DigiMark Recycle and vice versa. It increases the TAM of our overall opportunity in recycling. and it allows us to make an even more profound impact on our planet. Fifth, the three products being powered by DigiMark Illuminate align perfectly with our purpose. We highlight a product's journey to provide trusted intelligence and promote a prosperous, precious metals, safer, critical building materials, and more sustainable DRS world. Our greatest strengths always has been, is, and always will be our people. For a lot of our team, it is their belief in our purpose that drives them to excel. On a personal note, I find it pretty darn cool this single deal covers all three. I will now turn the call over to Charles to discuss our financial results.