Digimarc Corporation

Greetings and welcome to the Digimar Corporation first quarter 2026 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Charles Beck. Thank you. You may begin.

Welcome, everyone, to our Q1 earnings call. I'm Charles Beck, Digimark's CFO, and I'm joined today by Riley McCormick, Digimark's CEO. On the call today, Riley will provide a business update, and I will discuss Q1 2026 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. For those of you dialing in, this is a reminder that we are simulcasting the presentation we will walk through today. If you would like to follow along with the slides, I would encourage you to join our webcast as referenced in our earnings press release shared earlier today. 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 can cause actual results to differ materially. Riley will now provide a business update.

Thank you, Charles, and hello, everyone. On this call, we will walk through DigiMark's Q1 performance, highlight our strategic progress across product innovation and commercial execution, share updates on financial metrics such as ARR and free cash flow, and provide clarity on where we are focused in 2026. In Q1, we made significant progress in advancing adoption of our secure gift card solution. As we shared on our last call, during Q1, we achieved a critical milestone by signing our first commercial order covering six closed-loop and open-loop brands. We also made headway in laying the rails for additional orders and are currently advancing initial rollout plans with 15 North American retailers, including eight of the 20 largest as measured by sales, an increase from eight and four respectively since our call only two months ago. We secured upsells with three existing customers of our anti-counterfeiting solution. We continue to execute against a large opportunity in digital trust and integrity, securing a six-figure upsell with an existing customer while progressing a natural and exciting extension of our trust layer strategy that provides a critical, unmet need for scalable agentic AI. And we continue to add key talent across our company, especially in our go-to-market functions, including the recent addition of two accomplished sales leaders who have hit the ground running. Touching on our financial highlights in Q1, we grew ending AR 9% sequentially, while also expanding our subscription gross margin 400 basis points year over year. We ended the quarter with $10 million of cash and investments and no debt. And we expect to implement our new corporate structure shortly, allowing us to realize the benefits discussed on our last call. As a reminder, our three focus areas are retail loss prevention, product authentication, and digital trust and integrity. And we serve these markets with the seven solutions you see listed on this slide. In addition, we continue to selectively engage outside our three focus areas when the opportunities represent low distraction revenue, and or advance our positioning in longer term strategic areas. Starting with an update on retail loss prevention, we continue to make progress towards gaining widespread adoption of our secure gift card solution, aided by the industry's hyper focus on finding an answer to the fraud that is creating an existential threat to their business. Results to date demonstrate the power of our solution. Significant fraud reduction, improved checkout experience, and high scalability across printers, brands, and retailers all without any adverse impact on sales. As a reminder, we have posted a gift card investor supplemental on the investor relations section of our website, a hyperlink to which can be found on this slide. We appreciate the feedback we have received regarding the benefit the supplemental has provided in helping investors better understand the opportunity ahead. We are experiencing a noticeable uptick in market pull for our solution as the level of retailer, brand, and gift card network engagement has increased meaningfully even from our last earnings call just two months ago. Before I provide more details on that increased engagement, I want to provide an update on the two rollouts we shared on our last call. First, the rollout to all Schnucks locations is underway. Next, the summer rollout with the other retailer mentioned will be more limited than originally planned, with the full almost 600 location rollout now targeted for January 2027. As discussed in our March call, the greatest source of timing risk has been the scanner vendor shipping generally available versions of their firmware, running our latest software. While eight scanner models were GA'd in the requisite time frame we highlighted on that call, two were not, including one model critical to this retailer's front end. This delay had nothing to do with our software. Instead, it was related to base functionality key to enabling the retailer to push any firmware update in a scalable fashion, leading to the smaller summer launch. The scanner vendor has subsequently shipped the updated firmware, which is currently undergoing normal acceptance testing by the retailer. Importantly, this retailer's commitment to their customers and their belief that our solution will help protect those customers remains unchanged. We look forward to partnering with them in the months and years ahead. April is a busy month in the gift card industry as both large gift card networks host summits, enabling their ecosystems to coordinate ahead of the holiday season. As a result of these summits, as well as many other meetings, including an event at our headquarters attended by representatives from two very large retailers and a leading program manager, we are now advancing rollout plans with 15 North American retailers, including eight of the 20 largest as measured by sales. This represents a meaningful increase in both metrics since our Q4 call only two months ago. This momentum is being driven not only by us, but also by key industry participants, And in the last few weeks alone, we have heard about retailers proactively engaging with major brands to encourage their adoption of our solution, as well as with other retailers to increase incentive for widely sold brands to speed their adoption. Similar momentum building actions are being undertaken by the networks and key brands, and we are focused on orchestrating the multiple moving parts to ensure initial rollouts proceed as quickly and excellently as possible. As discussed in our last call, in Q1, We closed our first secure gift card commercial order representing over $500,000 of ARR. This order included gift cards from six closed-loop and open-loop brands. Just as we are on the retailer side, we continue to expand our number of brand engagements, including some of the largest open-loop and closed-loop issuers comprising both third-party and first-party opportunities. In addition to being a large market itself, we have discussed the value we see in secure gift cards opening opportunities in the much larger retail loss prevention market. Lighting up retailers for our gift card solution provides us a key technological footprint as our software will be widely distributed across their front of store scanners. It also creates DigiMark champions in both operations and loss prevention, two teams that often have competing priorities and where we stand out with our ability to deliver value to both. This unique position should aid us in cross-selling additional solutions into our retailer customers, as well as provide us differentiated and invaluable voice of market for the advancement of new solution candidates. We are already seeing encouraging signs that provide validation of this strategy. Multiple retailers have expressed an early interest in our product swap prevention solution, including one very large retailer who in addition asked about our ability to solve another problem they and the industry are facing, counterfeit coupons. Without losing focus on the opportunity immediately in front of us, we are excited to engage further across all these opportunities, including the expiration of this new potential solution for counterfeit coupons, as we believe our work in product authentication provides us a valuable foundation upon which to build. Turning now to product authentication, ARR from our anti-counterfeiting solution continues to grow, driven by customer upsell and new customer wins. Brands face rampant counterfeiting and IP theft, with bad actors advancing their technology and processes to replicate packaging and security features with alarming accuracy, something made ever easier by the advancement of AI. Decentralized supply chains and omnichannel sales make counterfeit detection more difficult, putting brands in a reactive position against emerging threats. Many security measures require trained inspectors and specialized tools, limiting accessibility, increasing costs, and reducing scalability. VigiMark's secure and scalable, covert and connected proactive solution provides superior results when compared to competing analog solutions such as tags, codes, inks, and labels. We closed three upsell deals with existing customers of our anti-counterfeiting solution in Q1. These brands represent leading companies from different industries, pharmaceuticals, food and beverage, and consumer goods, highlighting the wide applicability of our solution across many different verticals. We are fortunate to have some of the largest most well-known companies in the world as valued customers. As we have repeatedly stated, when we solve our customers' most challenging problems, we expect to benefit from the further upsell and cross-sell revenue generation for a long time. Turning now to digital trust and integrity, we continue to execute against this large and greenfield opportunity. Problems of trust and integrity in the digital domain existed prior to the advent of AI, but AI has created new ones while making prior ones worse and or harder to solve. The work of C2PA has created wide awareness that our technology addresses many of these problems, and our history, our credibility, our expertise, our experience, and our first to market with and co-leadership of the digital watermarking component of the C2PA standard are all coalescing to ensure we are well-positioned to surf this ever-growing wave. We secured a six-figure upsell with the global technology company that has adopted a leak detection for web content solution we discussed in our last call. We progress discussions with the important industry trade group we have previously mentioned that is searching for an industry-wide solution to a problem they previously felt unsolvable. As a result, we expect to soon enter direct conversations with the leading companies in this industry regarding our ability to help them solve this and other problems made worse by the advance of AI. And we're seeing engagement with U.S. government innovation programs. DigiMark has been included as a potential participant in the SoftWorks Field 4 technology sprint, an early but tangible sign that our technology is relevant in contested mission-critical environments. Touching quickly on product innovation in the large and rapidly evolving digital trust and integrity space, we are progressing a natural extension of our trust layer strategy that directly aligns with our existing IP and operating history and addresses a critical, unmet need for scalable, agentic AI. While the ultimate direction in how we attack this opportunity is being shaped by real-time industry engagement, the idea that enterprises will require an ultra-scalable way to verify what is real, authentic, and authorized as AI systems become more autonomous is gaining widespread acceptance. And providing an ultra-scalable way to verify what is real, authentic, and authorized is an area we believe we have a unique right to win. Agents act at machine speed. negotiating, transacting, and moving information without any human review. This not only increases the attack surface, it makes the agents themselves part of that surface. Existing software security architectures were built on the underlying assumption of human involvement, a premise that is rapidly eroding. As agents shift from content creation for human review to truly autonomous action, technology must replicate human experience and judgment or agentic utility will remain constrained by limitations placed on the tasks they are entrusted to undertake. While we are focused on our authentication use cases, we continue to support identification use cases that could drive future growth. We are advancing our position in these longer-term strategic areas and are confident in our ability to win when the time is right to pursue them. The Belgian and German market demonstrations of our recycling solution remain on track, and we are eager for the results. We believe these live cradle-to-rebirth activities will result in the production of new fractions of PCR feedstock that is not possible using current sorting technologies, providing tangible proof of our solution's ability to, among other things, create new end markets for recycled plastic. As a reminder, we believe this capability is crucial to the industry's ability to comply with the sunrise of the EU's packaging and packaging waste regulation. We have also closed two upsell deals with existing Engage customers, one in Q1 and another already in Q2. I will now turn the call over to Charles to discuss our financial results.