Digimarc Reports Third Quarter Financial Results
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BEAVERTON, Ore.--(BUSINESS WIRE)-- Digimarc Corporation (NASDAQ: DMRC) today announced financial results for the third quarter ended September 30, 2009. Revenues for the third quarter were $4.8 million, 3% lower than combined revenues for the predecessor ("Old Digimarc") and Digimarc operations of $4.9 million in the comparable period of 2008. The lower revenues primarily reflect the impact of variations in scheduled payments in certain of the Company's long-term contracts, and to a lesser extent lower royalties from some patent and technology licensees; offset in part by increased project work from the consortium of Central Banks.
The third quarter net loss of $(0.7)million, or $(0.10) per fully diluted share, included a full quarter of operating expenses as a stand-alone public company. This compares to combined predecessor and Digimarc's net income of $0.2 million, or pro-forma $0.03 per fully diluted share, for the third quarter of 2008, where operating expenses benefited from proportional allocations of various shared-services common costs of Old Digimarc.
Cash flow from operations for the third quarter totaled $(0.3) million, compared to the combined predecessor and Digimarc's $4.3 million for the comparable period of 2008.
The Company's Adjusted EBITDA in the third quarter was approximately break-even, compared to the combined predecessor and Digimarc's $0.3 million, or 6% of revenues in the comparable three-month period of 2008. Digimarc calculates Adjusted EBITDA by adjusting net income (loss) for the effects of interest, taxes, depreciation, amortization and non-cash expenditures for stock compensation. The reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, is included at the end of this release.
Digimarc reported backlog at quarter end of approximately $46 million. The Company also reported that its cash, cash equivalents and short and long-term marketable securities at approximately $44 million on September 30, 2009, a decrease of approximately $2 million from last quarter, reflecting investments in the Company's share repurchase program ($800K), Nielsen joint ventures ($550k), and capital expenditures and capitalized patent costs ($400k).
Conference Call
Digimarc will hold its third quarter earnings conference call on October 30, 2009 at 11:00 a.m. Eastern time. The call will be open to the general public and the media, and will be broadcast live by webcast at www.digimarc.com and www.earnings.com. The webcast may be accessed at the Company's website, www.digimarc.com, by clicking on the "Q3 2009 Digimarc Earnings Conference Call" webcast link on the "Events and Webcasts" page within the "Investors" section. This webcast will be available for later listening at both sites for two weeks following the live call. Thereafter, the webcast will be archived and available at https://www.digimarc.com/investors/events.asp.
About Digimarc
Digimarc Corporation (NASDAQ: DMRC), based in Beaverton, Oregon, is a provider of enabling technologies that create digital identities for all forms of media and many everyday objects that are imperceptible to humans, but not to computers. These technologies help computers to better process sensory data as the industry evolves toward more intuitive pervasive computing. For more information, please visit us at www.digimarc.com to learn more.
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 identified by terminology such as "may," "will," "should," "expects," "intends," "plans," "projects," "anticipates," "believes," "estimates," "predicts," "potential," "illustrate," "example" 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 is set forth in the Company's Form 10-K for the year ended December 31, 2008 in Part I, Item 1A thereof ("Risk Factors"), Part II, Item 7 thereof ("Management's Discussion and Analysis of Financial Condition and Results of Operations") under the captions "Liquidity and Capital Resources" and "Forward Looking Statements," 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.
Explanation of Financial Information Presented
The financial information presented for the three- and nine-months ended September 30, 2008 includes "carve-out" financial information from Old Digimarc's digital watermarking business, or predecessor. It is important to note that the financial information in the carve-out financial statements does not include all of the expenses that would have been incurred had the predecessor been a separate, stand-alone public entity. As such, the predecessor financial information does not reflect the financial position, results of operations and cash flows of Digimarc's current business, had the predecessor operated as a separate, stand-alone public entity during the periods presented in the carve-out financial statements. Additionally, the carve-out financial statements include proportional allocations of various shared-services common costs of Old Digimarc because specific identification of these expenses was not practicable. It is expected that the initial operating costs of Digimarc on a stand-alone basis will be higher than those allocated to the predecessor operations under the shared services methodology applied in the carve-out financial statements.
Digimarc Corporation
Income Statement Information
(in thousands, except per share amounts)
(Unaudited)
Three Month Information Nine Month Information
Successor / Successor /
Successor Predecessor * Successor Predecessor *
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Revenue:
Service $ 2,827 $ 2,566 $ 7,882 $ 8,101
License & 1,942 2,365 5,640 7,030
subscription
Total revenue 4,769 4,931 13,522 15,131
Cost of revenue:
Service 1,499 1,417 4,396 4,409
License & 42 69 158 189
subscription
Total cost of 1,541 1,486 4,554 4,598
revenue
Gross profit:
Service 1,328 1,149 3,486 3,692
License & 1,900 2,296 5,482 6,841
subscription
Total gross profit 3,228 3,445 8,968 10,533
Percentage of gross
profit to revenues:
Service 47 % 45 % 44 % 46 %
License & 98 % 97 % 97 % 97 %
subscription
Percentage of gross
profit to total 68 % 70 % 66 % 70 %
revenue
Operating expenses:
Sales and marketing 753 979 2,226 2,318
Research and 1,191 1,019 3,679 2,851
development
General and 1,566 1,374 4,750 3,281
administrative
Intellectual 262 296 756 1,222
property
Transitional (45 ) (196 ) (153 ) (196 )
services
Total operating 3,727 3,472 11,258 9,476
expenses
Operating income (499 ) (27 ) (2,290 ) 1,057
(loss)
Other income (185 ) 254 128 769
(expense)
Provision for income (3 ) - (12 ) (11 )
taxes
Net income (loss) $ (687 ) $ 227 $ (2,174 ) $ 1,815
Earnings (loss) per
share:
Net income (loss) $ (0.10 ) $ (0.30 )
per share - basic
Net income (loss) $ (0.10 ) $ (0.30 )
per share - diluted
Weighted average
shares outstanding - 7,134 7,150
basic
Weighted average
shares outstanding - 7,134 7,150
diluted
Pro-forma earnings
(loss) per share:
Net income (loss) $ 0.03 $ 0.25
per share - basic
Net income (loss) $ 0.03 $ 0.25
per share - diluted
Weighted average shares outstanding 7,143 7,143
- basic
Weighted average shares outstanding 7,143 7,143
- diluted
* The financial information presented combines the periods through August 1,
2008, referred to as "carve-out" financial information from Old Digimarc's
digital watermarking business, or predecessor, with the period August 2, 2008
through September 30, 2008 for Digimarc, or successor, to arrive at quarterly
and year-to-date totals for comparative purposes.
Digimarc Corporation
Balance Sheet Information
(in thousands)
(Unaudited)
Successor Successor
September 30, December 31,
2009 2008
Assets
Current assets:
Cash and cash equivalents (1) $ 10,685 $ 18,928
Short-term marketable securities (1) 30,760 21,240
Trade accounts receivable, net 3,027 3,839
Other current assets 1,001 875
Total current assets 45,473 44,882
Long-term marketable securities (1) 2,087 5,744
Property and equipment, net 1,180 1,212
Intangibles, net 1,088 456
Other assets, net 544 147
Total assets $ 50,372 $ 52,441
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 767 $ 937
Accrued payroll and related costs 246 42
Accrued merger related liabilities 144 386
Deferred revenue 1,716 2,418
Total current liabilities 2,873 3,783
Long-term liabilities 134 257
Total liabilities 3,007 4,040
Commitments and contingencies
Stockholders' equity:
Preferred stock 50 50
Common stock 7 7
Additional paid-in capital 49,406 48,268
Retained earnings (accumulated deficit) (2,098 ) 76
Total stockholders' equity 47,365 48,401
Total liabilities and stockholders' equity $ 50,372 $ 52,441
(1) Aggregate cash, cash equivalents, short- and long-term marketable
securities was $43,532 and $45,912 at September 30, 2009 and December 31,
2008, respectively.
Digimarc Corporation
Cash Flow Information
(in thousands)
(Unaudited)
Three Month Information Nine Month Information
Successor / Successor /
Successor Predecessor * Successor Predecessor *
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Cash flows from
operating
activities:
Net income (loss) $ (687 ) $ 227 $ (2,174 ) $ 1,815
Adjustments to
reconcile net income
(loss) to net cash
provided by (used
in) operating
activities:
Depreciation and 149 191 425 637
amortization
Stock-based 629 137 1,808 914
compensation expense
Net loss from joint 311 - 311 -
ventures
Increase (decrease)
in allowance for - (43 ) - (43 )
doubtful accounts
Other non-cash - 405 - 405
charges
Changes in operating
assets and -
liabilities:
Trade and unbilled
accounts receivable, (318 ) 668 812 216
net
Other current assets (81 ) (176 ) (126 ) (188 )
Other assets, net 67 (73 ) (158 ) (83 )
Accounts payable and
other accrued (195 ) 337 (155 ) 361
liabilities
Accrued payroll and 47 1,062 204 1,455
related costs
Accrued merger (32 ) 1,906 (242 ) 1,906
related costs
Deferred revenue (201 ) (466 ) (714 ) (334 )
Other liabilities (30 ) 77 (87 ) 69
Net cash provided by
(used in) operating (341 ) 4,252 (96 ) 7,130
activities
Cash flows from
investing
activities:
Purchase of property (160 ) (264 ) (374 ) (823 )
and equipment
Capitalized patent (204 ) (187 ) (651 ) (187 )
costs
Investment in joint (550 ) - (550 ) -
ventures
Sale or maturity of
short-term 5,053 103,046 20,738 206,441
investments
Purchase of
short-term (3,998 ) (104,117 ) (26,601 ) (207,793 )
investments
Net cash provided by
(used in) investing 141 (1,522 ) (7,438 ) (2,362 )
activities
Cash flows from
financing
activities:
Cash from Parent - 21,527 - 23,862
stock activity
Net activity with - (12,784 ) - -
Parent
Issuance of common 152 - 152 -
stock
Purchase of common (822 ) - (822 ) -
stock
Principal payments
under capital lease (31 ) - (39 ) (13,237 )
obligations
Net cash provided by
(used in) financing (701 ) 8,743 (709 ) 10,625
activities
Net increase
(decrease) in cash $ (901 ) $ 11,473 $ (8,243 ) $ 15,393
and cash equivalents
(2)
* The financial information presented combines the periods through August 1,
2008, referred to as "carve-out" financial information from Old Digimarc's
digital watermarking business, or predecessor, with the period August 2, 2008
through September 30, 2008 for Digimarc, or successor, to arrive at quarterly
and year-to-date totals for comparative purposes.
Cash equivalents and
marketable $ 45,488 $ 36,914 $ 45,912 $ 32,713
securities at
beginning of period
Cash equivalents and
marketable 43,532 49,458 43,532 49,458
securities at end of
period
(2) Net increase
(decrease) in cash,
cash equivalents and
marketable $ (1,956 ) $ 12,544 $ (2,380 ) $ 16,745
securities
Digimarc Corporation
Reconciliation of GAAP and Non-GAAP Financial Measures
Adjusted EBITDA
(in thousands)
(Unaudited)
Three Month Information Nine Month Information
Successor / Successor /
Successor Predecessor * Successor Predecessor *
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Net income (loss) $ (687 ) $ 227 $ (2,174 ) $ 1,815
Adjustments:
Provision for income 3 - 12 11
taxes
Interest income, net (124 ) (271 ) (436 ) (786 )
Depreciation and 149 191 425 637
amortization
Stock compensation 629 136 1,808 913
Adjusted EBITDA $ (30 ) $ 283 $ (365 ) $ 2,590
* The financial information presented combines the periods through August 1,
2008, referred to as "carve-out" financial information from Old Digimarc's
digital watermarking business, or predecessor, with the period August 2, 2008
through September 30, 2008 for Digimarc, or successor, to arrive at quarterly
and year-to-date totals for comparative purposes.
About Adjusted EBITDA
From time to time, we may refer to Adjusted EBITDA in our conference calls and discussions with analysts in connection with our historical financial results and our guidance for future periods. Adjusted EBITDA does not represent cash flows from operations as defined by generally accepted accounting principles ("GAAP"), is not a measure derived in accordance with GAAP and should not be considered by the reader as an alternative to net income (the most comparable GAAP financial measure to Adjusted EBITDA). The reconciliation of GAAP and Non-GAAP Financial Measures for the three- and nine-months ended September 30, 2009 and 2008 are included in the above table. Management of the Company believes that Adjusted EBITDA is helpful to investors as an indicator of the current financial performance of the Company and its capacity to fund capital expenditures and working capital requirements. Due to the Company's use of stock-based employee compensation, the Company incurs significant non-cash charges for stock compensation expense that may not be indicative of our operating performance from a cash perspective. Therefore, the Company believes that providing the measure of Adjusted EBITDA will help investors better understand the Company's underlying financial performance and ability to generate cash flow from operations.
Source: Digimarc Corporation
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