Digimarc Corporation (DMRC)

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Digimarc Corporation (DMRC)

Q1 2010 Earnings Call Transcript

April 30, 2010 11:00 am ET


Bruce Davis - Chairman and CEO

Mike McConnell - CFO


Bill Gibson



Good morning. My name is Jasper, and I will be your conference operator today. At this time, I would like to welcome everyone to the Digimarc’s Q1 2010 Earning 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)

Thank you. I'll now turn the call over to Mr. Bruce Davis, Chairman and CEO of Digimarc.

Bruce Davis

Thank you, Jasper, good morning everyone. Welcome to our earning conference call, Mike McConnell, our CFO, is with me. We are pleased to present our first quarter results which were issued in the press release this morning. 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 strategy and operations. This webcast will be archived in the Investor Relations section of our website and we expect to file our 10-Q with the SEC this afternoon providing more details on the financial results.

Please note that during the course of this call, we will be making certain forward-looking statements. These statements are subject to many assumptions, risks, uncertainties, and changes in circumstances. Any assumptions we offered by future performance represent in point and time estimate. Actual results may vary materially from those expressed or implied by such statements. We expressly disclaim any obligation or revise or update any assumptions, projections or the forward looking statements to reflect event or circumstances that may arise after the date of this conference call. For more detailed information about risk factors that may cause actual results to differ from expectations, please see the company’s filings with the SEC, including the 10-Q we file later today and our earnings release posted on our website this morning.

Mike will summarize and comment on the financial results. Following Mike's presentation, I will return to discuss some of the important events and achievements during the quarter and provide an update on execution strategy.

Now we’ll open our call to your questions. Mike?

Mike McConnell

Thanks Bruce and good morning everyone. Thanks for joining us for today’s conference call. Our revenues for the quarter increased 130% to $10.2 million from $4.4 million more than doubling the same amount from a year ago. The increase was primarily the result of a $4.5 million payment in connection with the licensing arrangement with Arbitron, completion of certain of our federal government contracts and increased work with our central bank customers.

Both our service and license revenues reached record levels on a quarterly basis. Our gross margin was 82% compared to 66% in Q1 of 2009. The increase was primarily attributable to increased revenues from our licensees, the most notably in those from Arbitron. Service margins also improved due to improved labor utilization. Operating expenses increased 8% to $4.1 million from $3.9 million in the first quarter of 2009. The increase reflects investments in product development and our IP marketing initiatives.

Operating income totaled $4.2 million more than $5 million better than the operating loss of $1 million in Q1 of 2009. And the improvement reflects both the Arbitron licensing arrangement as well as operating leverage gain for the improving recourse management.

Net income was $3.8 million or $0.51 per share which was an improvement for the net loss of $809,000 or $0.11 per share in the prior year. Our operating cash flow of $5.4 million was achieved during the quarter and reflects the improved operating results in good balance sheet management.

We ended the quarter were $47 million in cash up more than $4 million from the year end and we continued to prudently invest and grow including $700,000 in our early stage during joint ventures with Nielson and incremental spending on our IP marking and this is to expand our licensing program.

Before the discussion of these results our business and financial models. And risk and prospects for our business, please refer to Form 10-Q that we expect to file a little bit later today. We believe that there may be additional upside to be realized during 2010 including entering into significant new business relationships resulting from our IP marketing initiatives.

On the flip-side there is a possibility that you may choose to spin above the levels discussed previously to encourage prospective partners to engage if necessary. Bruce will now provide his comments on our outlook and execution of our strategy.

Bruce Davis

Thanks Mike our financial and operational accomplishments during the first quarter represent a solid start to achieving our 2010 operating plain objectives. We continue to believe this should be quite an exiting and rewarding year for the company.

On March 29, entered into the previously announced $4.5 million collaborative patent licensing arrangement with Arbitron, we are pleased to have achieved a successful outcome of this matter without litigation. The conclusion and the negotiation allows us to turn our attention to numerous additional patterns than software licensing and development services opportunities.

The record Q1 results were driven largely by the Arbitron agreement. Which we believe evidence is the strength of our patent portfolio and promise over long strategy at leveraging our pattern and proprietary technologies and market experience to deliver superior growth and value for our share holders. We continue to broaden these in our pattern portfolio and licensable technologies with relevant and innovations.

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