What Digimarc (DMRC) Said on Its Q3 Earnings Call

Key Points

• Q3 results declined as revenue fell to $6.4 million from $7.6 million and ARR dropped to $10.8 million from $15.8 million, largely due to two previously disclosed contract changes.
• Digimarc reported signs of new demand: it signed a European consumer packaged goods contract expected to generate more than $1.1 million in annual revenue and has over 68 retailers engaged in its Secure Gift Card program.
• Gift card deployments are expanding, including completed rollouts at Schnucks and Stater Bros. and an initial Kroger rollout, with further expansion targeted for 2027. The company ended the quarter with $22.1 million in cash and short-term investments and no debt.

Digimarc NASDAQ: DMRC reported lower third-quarter revenue and annual recurring revenue as previously disclosed contract changes weighed on results, while executives pointed to new gift card security orders and a consumer packaged goods contract as signs of emerging demand.

Revenue fell to $6.4 million from $7.6 million a year earlier, and ending annual recurring revenue, or ARR, declined to $10.8 million from $15.8 million. CFO Charles Beck attributed the ARR decline primarily to the expiration of a $3.1 million contract in October 2025 and a $2.6 million contract reduction in June 2026.

CEO Paul Carreiro said Digimarc had received additional Secure Gift Card orders from large retailers earlier than expected and had more than 68 retailers engaged, compared with one at the start of the year. The company also signed a large European consumer packaged goods customer for more than $1.1 million in expected annual revenue, covering two of the customer’s 24 regions.

Beck said the consumer packaged goods contract was signed in the fourth quarter and was not included in the third-quarter ARR figure. Carreiro cautioned that the company still needs to turn demand into deployments and recurring revenue, and that its visibility into 2027 bookings and revenue remains below the level he expects.

Gift Card Rollouts Expand

Carreiro said Digimarc’s Secure Gift Card program is moving from validation into staged retailer rollouts. Schnucks is live across all 115 stores, and Stater Bros. has completed a 165-store rollout. At Schnucks, Carreiro said the deployment had achieved 100% activation with no reported fraud incidents to date.

Kroger began an initial five-store rollout in October, with Digimarc targeting an expansion to 500 stores in the first quarter of 2027. Carreiro also said Food City K-VA-T was beginning its rollout and that the company expected at least one more large retailer to start a program before year-end.

Digimarc is planning more than 1,000 stores across other retailer deployments as it moves into the first quarter, Carreiro said. He expects the associated revenue contribution to build through 2027 as deployments progress, while noting that scanner software availability and retailer scheduling remain dependencies.

During the question-and-answer session, Carreiro said the majority of the company’s leads had come from partners, including printers, distributors and scanner providers. Digimarc is also building a direct retailer sales approach alongside those relationships.

Sales Build-Out and Financial Results

Carreiro said Digimarc is concentrating its direct commercial resources on retail and consumer packaged goods while continuing to pursue central bank and federal opportunities with partners. The company has hired senior leaders across sales, marketing, revenue operations and partnerships and plans to add account executives in North America and Europe.

He said the sales team ramp-up is expected to continue into the first and second quarters of 2027, with an enablement program intended to help new hires become productive. Digimarc also sees opportunities to expand business with existing customers and improve retention through greater engagement, he said.

Third-quarter subscription revenue fell to $3.2 million from $4.6 million a year earlier. Beck said the two previously disclosed contract changes accounted for the decline. Service revenue rose to $3.3 million from $3.1 million, helped by higher revenue from a commercial customer.

Operating expenses declined 10% to $11.5 million, primarily reflecting lower stock compensation and bad debt expenses. Net loss per diluted share narrowed to $0.36 from $0.38, while non-GAAP net loss per diluted share widened to $0.13 from $0.10.

Digimarc ended the quarter with $22.1 million in cash and short-term investments and no debt. It raised $18.2 million in gross proceeds through a registered direct offering during the quarter. Free cash flow usage increased to $4.3 million from $3.1 million, which Beck attributed to the timing of payables related to the corporate reorganization and CEO transition costs.

About Digimarc (NASDAQ:DMRC)

Digimarc Corporation NASDAQ: DMRC develops digital watermarking and product identification technologies. Its platform embeds imperceptible, machine-readable identifiers into images, audio, video, printed materials and product packaging, enabling businesses and devices to recognize, authenticate and track physical and digital objects. The company's solutions support applications including brand protection, product authentication, supply-chain visibility, media management, content monetization and recycling.

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