DMRC

Digimarc Corporation (DMRC)

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Digimarc Corporation (DMRC)

Q4 2009 Earnings Call

February 24, 2010 11:00 AM EST

Executives

Bruce Davis – CEO

Mike McConnell – CFO

Analysts

Aalok Shah – D.A. Davidson

Bill Gibson – Waluga Capital Advisers

Andy Hargreaves – Pacific Crest

Paul Sonz – Sonz Partners

Andrew Weiner – Burnham Securities

Kevin Hanrahan – KMH Capital

Presentation

Operator

Good morning. My name is Celeste and I will be your conference operator today. At this time, I would like to welcome everyone to the Digimarc fourth quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

At this time, I would like to turn the call over to Mr. Bruce Davis. Please go ahead sir.

Bruce Davis

Thank you. Welcome to our conference call. Mike McConnell our CFO is with me.

We issued the press release last night announcing our 2009 financial results. The objectives of this call are to summarize and comment on these results, review significant business developments and market conditions and provide an update on our strategy and operations. This webcast will be archived in the Investor Relations section of our website.

Before we proceed, please note that during the course of this call, we will be making certain forward-looking statements. These statements are subject to many assumptions, risk, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied by such statements.

Any assumptions we offer about future performance represent a point-in-time estimate. We describe various assumptions and projections in this call for the limited purpose of giving you a sense of our planning assumptions. We expressively disclaim any obligation to revise or update any assumptions, projections or other forward-looking statements to reflect events or circumstances that may arise after the date of this conference call.

For a more detailed information about risk factors that may cause the actual results to differ from expectations, please see the company's filings with the SEC, including our Form 10-K that we will file later today and our earnings release posted on our website this morning.

During the course of this conference call, we will also refer to certain non-GAAP financial measures as defined by the SEC and Reg G. Definitions of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in the earnings release.

Mike will begin by commenting on our financial results. I will then comment on our outlook and execution strategy. Mike?

Mike McConnell

Thanks Bruce and good morning everyone. The completion of our fourth quarter marked the first comparable quarterly period of operations of new Digimarc since its spinoff from old Digimarc back in Q3 of 2008. Full-year results will still need to be viewed in the context of the basis of accounting use presenting those 2008 financial statements.

As we have consistently explained in our calls and SEC filings since the spinout, the basis of accounting use for the digital watermarking business prior to the spinout and through August 1st, 2008 is referred to as a carve out of the digital watermarking assets, liabilities, and results of operations from the old Digimarc business that included our ID systems operations that were sold to L-1, thus making it difficult to immediately compare the new to the old financial results due to the different basis of accounting. Please keep this in mind as you review and compare our full year-to-year results.

Reflecting obviously challenging economic times for our business partners and licensees during 2009, our revenues came in roughly the same as in 2008. Notwithstanding the flat revenues in 2009, we achieved positive operating cash flow and ended the year with a strong balance sheet with approximately $43 million in cash and no debt and we had a backlog of about $42 million.

We continued to invest prudently in our business including a $1.1 million investment in our early stage joint ventures with Nielsen, $1.6 million of share repurchases to improve liquidity and financial leverage for our shareholders, continued employee and internal process development designed to increase our operating leverage as we plan for growth, and accelerating our IP marketing initiatives to extend our licensing program.

Our Q4 2009 financial highlights include revenues of $5.5 million that were higher by 19% year-over-year with the majority of the increase attributed to services rendered under our previously announced federal defense contracts. Both service and license revenues reached record levels on a quarterly basis. And our gross margins at 69% were consistent with those achieved in the fourth quarter of 2008.

Operating expenses which are comparable for the first time since the spinout of old Digimarc from old Digimarc reflects the continued investments in new product initiatives as well as increased investments in connection with our IP marketing activities. Our operating loss of $300,000 was the lowest since the spinoff. We invested $550,000 in our joint venture with Nielsen and we purchased just over $52,000 shares of our stock at an average price of $14.11 a share.

For a further discussion of these results, our business and financial models, and risks and prospects of our business, I refer you to the Form 10-K that we expect to file a bit later today.

Looking to 2010, our observations and current planning assumptions regarding potential 2010 financial performance include the following: thus far financial performance in Q1 is tracking for revenues of just over $5 million, up from $4.4 million recorded in Q1 of 2009. The current expectation reflects some lumpiness in our licensing revenues on a quarterly basis that we experience from time-to-time based on our licensee royalty reporting and receipts from our cash basis customers.

Read the rest of this transcript for free on seekingalpha.com