Digimarc CORP — Call Transcript 2025

Ladies and gentlemen, greetings and welcome to the Digimarc Corporation Q2 2025 earnings conference call. At this time, all participants are in the listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Karamanos. Please go ahead. Thank you very much. Welcome, everyone, to our Q2 conference call. Riley McCormack, our CEO, and Charles Beck, our CFO, are with me on the call. On the call today, we will provide a business update and discuss Q2 2025 financial results. This will be followed by a question and answer form. We have posted our prepared remarks in the Investor Relations section of our website and will archive this webcast there. For those of you dialing in, we have changed the format of our prepared remarks and will be simulcasting a presentation that Riley and Charles 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 could cause actual results to differ materially. Riley will now provide a business update. Thank you, George, and hello, everyone. On this call, we will walk through Digimarc's Q2 performance, highlight our strategic progress across product innovation and commercial execution, including the pending launch of our gift card solution, share updates on our financial metrics such as ARR and cash burn, and provide clarity on where we are focused heading into the second half of the year. In Q2, we made significant progress toward launching our gift card solution, generated new ARR from a European packaging customer through a multi-year committed contract that should generate near seven figures next year, and had several upsell ARR wins with existing customers. We delivered our next-generation audio digital watermark to enable accurate compensation for creators and safeguard sensitive data. We were recognized in Gartner's hype cycle as a key vendor in the emerging trust ops category, alongside the likes of Microsoft and Google, and aligned with McKinsey's identification of digital trust as one of the top technology trends shaping the future. We also completed our corporate reorganization in the second quarter and are seeing significant benefits across the organization as a result. Financially, the reorganization has resulted in a meaningful reduction in operating expenses and cash usage, and we remain on track to deliver positive free cash flow by Q4 2025. Operationally, it has allowed us to increase our focus on the areas most likely to deliver the scalable and repeatable business we must always focus on delivering. I would like to thank all of my teammates for their hard work in effecting this important step in our continued evolution. While not an easy process, we are seeing positive results in our ability to execute on our business. As has been shared previously, our three focus areas are retail loss prevention, product authentication, and digital authentication. We have several significant ARR generation opportunities in front of us, such as protecting the world's gift cards that exhibit strong demand pull characteristics with the goal of much quicker time to revenue relative to some of our identification use cases. The decision to focus our time and resources on these three core areas in the authentication space was supported by deep market research, validated by customer feedback, and further confirmed independently by work we commissioned from our consulting partners. With that said, we remain firm believers in our positioning and our ability to execute on the various ecosystem-driven opportunities in the identification space as they eventually become ripe enough to pursue. Our greatest near-term opportunity is retail loss prevention, and more specifically, our gift card solution. We made substantial progress during the quarter on commercializing our solutions to address gift card fraud, an ever-increasing existential threat the industry is hyper-focused on solving. We are proud to announce that the first Digimarc protected gift cards have been received by our first retailer and will appear on shelves next week. While the initial rollout took slightly longer than planned for reasons outside of our control, it includes gift cards from multiple different brands, including some of the largest companies in the world. The interest from these brands reflects the detailed joint success planning we have been undertaking with members of the gift card industry ecosystem, including gift card network companies, gift card manufacturers, card manufacturing equipment providers, label providers, point-of-sale scanner manufacturers, and of course, retailers and brands. This joint success planning positions us to increase long-term revenue velocity as these initial cards hit shelves. We intend to predominantly sell our solution to gift card manufacturers who will apply our technology during their normal printing process before delivering the cards as they currently do today. We have built our go-to-market strategy around trying to solve for two often conflicting goals: providing a revolutionary new solution and minimizing impact on the ecosystem's existing workflow. I think the team has done an incredible job of doing just that. From jointly building threat models that clearly show how our existing solution already reduces fraud and how our roadmap will drive even greater results, to creating a detailed interactive pilot plan that allows for near real-time impact measurement to all the work in between, we've invested the time and resources to set up our solution for success today, as well as accelerate the pace of adoption in the future. As we've shared in the past, one of the most powerful facets of this opportunity is that laggards in the adoption of our gift card solution will bear the compounded cost of an increasing percentage of an increasing amount of fraud. We and our partners believe this positions us for a powerful demand pull dynamic. Moreover, this is a widely held view across the industry, and the interest of those not yet included in next week's rollout has continued to increase. In parallel to setting up this initial rollout for maximum success, we've been planning additional rollouts with other industry players as well. While it is hard to be certain ahead of some critical upcoming events, what impact, if any, the slight delay in our initial rollout will have on our 2025 revenue, we have lowered our internal estimate for 2025 gift card revenue. Next week marks a critical milestone and accomplishment in our work to catalyze the gift card industry towards meaningful adoption of our solution, and we believe whatever impact the pilot delay might cause to our 2025 revenue, if any, will be paid back next year and beyond. Turning now to our focus on product authentication, I am thrilled to announce we signed a multi-year committed deal with a large European packaging company that should represent near seven figures of ARR starting next year and beyond. In addition to providing our customer the ability to resell Digimarc Validate and Digimarc Automate directly, this deal allows our partner to roll out a deploy-now, activate-later offering on all the packaging they produce, feeding the market for, among other things, potential future Digimarc Recycle deals. Just last week, I had dinner with the CEO of this valued customer, and he shared his plans for utilizing our partnership to drive messaging at an upcoming conference, stating that he believes our partnership will enable his company to stand out amongst their peers and drive new business their way. More immediately, he wants to arrange an opportunity for us to spend time with a sister company that he believes is interested in pursuing a similar relationship with us. Nothing is more powerful when driving to a scalable and repeatable business than delighting existing customers, and our focus is, as it always is, on continuing to win our customers' business every day. We also signed upsell deals with three of our existing Digimarc Validate customers, reflecting both increased contract value and the expansion of our solution to new geographies and new brands. As we have repeatedly stated, when we solve our customers' most challenging problems, we expect to be an upsell and cross-sell company for a long time. While still early in that journey, the results are proving this thesis correct. Brands face rampant counterfeiting and IP theft, and our secure and scalable, covert and connected solutions provide far superior results compared to competing analog solutions such as tags, codes, inks, and labels. Touching now on our digital authentication solutions, as mentioned on our last two calls, we chose to be conservative about this area's contribution to 2025 ARR. We made this decision to help ensure we remain focused on optimizing our work in this area for the long term. We have already exceeded these conservative assumptions. As announced in a recent press release, we recently delivered a next-generation audio digital watermark architected to address the unprecedented challenges rights holders, content creators, companies, and governments face with the explosion of digital and AI-generated content and capabilities. We recently signed a new deal with SourceAudio to embed our audio watermarks into production music for TV and commercials in order to monitor royalty rights across over 150 national channels and 100 local stations. Additionally, we have multiple deals in the pipeline as a result of our new offering, including technical testing with an AI company looking to both comply with EU regulation as well as automate internal authentication. Our next-generation offering has also caught the attention of an important industry group that is searching for solutions to an unmet need arising from the emergence of AI. We look forward to proving our value to this gatekeeper and unlocking the opportunities on the other side. Q2 also saw us grow the relationship with the Fortune 100 customer we mentioned on the last call, signing a low six-figure deal that we believe could grow close to seven figures starting in year two and beyond. In addition to our belief that this customer presents a future upsell opportunity, they have offered to be a reference account to other prospects in the future. Additionally, the implementation of our solution is being led by one of the world's largest system integrators. Success with our shared mutual customer should open future doors for us to partner with this industry giant to deter insider threats and safeguard sensitive data for additional customers across industries and sectors worldwide. The twin catalyst of the relentless advance of AI models and agents and the rapid progression of content credentials has created a wave of awareness and urgency for a robust, scalable, secure, and imperceptible, perpetual, and deterministic solution to address the many trust and authenticity problems growing in the digital world. We expect this space to continue its recent noteworthy growth and evolution. While some of the nascent digital use cases might be served, at least in the interim, with good enough offerings, what has become apparent to us in the last few months is that the aforementioned twin catalysts are opening the market for use cases where good enough just simply will not do. Our technology, 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 surface the ever-growing wave. We pioneered this space. This is quite literally what we were born to do, and the market is finally here. Although our focus over the near term will be on our three core focus areas, we continue to believe in our positioning and ability to execute in other areas when those markets are ripe for addressing. Before I turn the call over to Charles, I want to address a development that will have a negative future impact on our near-term top-line results. We are currently in contract renegotiations with a large retailer customer of a legacy solution, which will most likely result in a reduction of up to $3 million in annual revenue. As these conversations are very recent and currently ongoing, we are not able to estimate the exact impact at this time. This development also reinforces our decision to focus on our three authentication markets and building the trust layer for the modern world. Solving urgent problems provides stronger protection from changes in customer strategic focus than some of our legacy solutions did. Moreover, this retailer is an important gift card vendor, and our focus is on maximizing future revenue opportunities for our gift card solution, not on trying to maximize revenue from a use case we haven't sold in many years. We believe we continue to have an excellent relationship with this customer and that there is much to accomplish with them over the coming years. We are excited to continue to help them win. We are also energized by moving Digimarc into a future where we are not overly reliant on any one customer and can move more quickly with the market. We are confident in the opportunities provided in our key three focus areas and are excited by the results our increased focus are already beginning to deliver. Ecosystem-based sales are great because of their size, but the sales cycles can be slow, expensive, and multiple constituencies must adopt before meaningful ROI is unlocked. Our strategic shift allows for the building of a scalable and repeatable business where we can fail fast, iterate, and win often. Even with the expected top-line impact of this contract renegotiation, we still anticipate being free cash flow positive in Q4. Reorganizing our company to focus on our authentication use cases was a difficult but necessary decision, and we appreciate our investors' patience as we navigate this transition, which we are more confident than ever is the best strategy for the company and will create the best outcome for investors. Even if timing around meaningful revenue generation from our new products were to slip one to two quarters, we believe the company is well positioned to win and reach significant scale. I will now turn the call over to Charles to discuss our financial results. Thank you, Riley, and hello, everyone. Ending ARR for Q2 was $15.9 million compared to $23.9 million for Q2 last year. The decrease reflects both the $5.8 million retailer contract that lapsed last year and $3.5 million from the DRS contract that lapsed in Q2 this year. Excluding these two headwinds, ending ARR grew $1.3 million year over year. That growth, however, was largely muted by higher other customer churn and our choosing to be strategically price aggressive on products outside of our focus areas, both of which had outsized impacts in the first half of 2025. As I stated on the last earnings call, we expected these impacts as we sharpened our go-to-market focus, and it is important to note that our ending ARR is in line with our original 2025 internal budget. Total revenue was $8 million, a decrease of $2.4 million, or 23%, from $10.4 million in Q2 last year. Subscription revenue, which accounted for 58% of total revenue for the quarter, decreased 28% from $6.4 million to $4.6 million. The decrease reflects the impact of two expired contracts I just referenced. Service revenue decreased 15% from $4 million to $3.4 million, reflecting lower government service revenue from the central banks. The decrease is generally in line with our expectation of a 12%-14% decrease in program work for fiscal 2025 that we shared on the previous earnings call. Subscription gross profit margin, excluding amortization expense, was 85% for the quarter, down four percentage points from Q2 last year, reflecting the impact of lower subscription revenue. We anticipate that subscription gross profit margins may be lower next quarter as we work to consolidate our legacy platforms. After the migrations are completed, we expect subscription gross margins to not only fully recover but to increase beyond current levels as we benefit from the efficiencies of the Illuminate platform. Service gross profit margin was 59% for the quarter, essentially flat with Q2 last year. Operating expenses were $13.1 million for the quarter, down $3.7 million, or 22%, from $16.8 million in Q2 last year. Included in operating expenses this quarter was $600,000 of legal expenses, largely related to an external shareholder matter. We do not expect these legal expenses to continue. Excluding these legal expenses, operating expenses were $4.3 million, or 26% lower than Q2 last year. The large reduction in costs reflects lower compensation costs due to the reorganization in Q1 this year. As we look forward, we expect to continue to see a reduction in our run rate of expenses as not all the benefits from our streamlining efforts, especially in the non-compensation cost areas, were fully realized yet in our Q2 results. Non-GAAP operating expenses, which excludes non-cash and non-recurring items, were $8.9 million for the quarter, down $5.2 million, or 37% from $14 million in Q2 last year. Again, the decrease is due to the impact of the reorganization and streamlining efforts, partially offset by $600,000 of higher legal expenses. Net loss per share for the quarter is $0.38 versus $0.43 in Q2 last year, while non-GAAP net loss per share for the quarter was $0.11 versus $0.23 in Q2 last year. Our internal plan for 2025 at the start of the year was to be non-GAAP profitable and free cash flow by no later than Q4. Even adjusting our plan to account for the risks to revenue Riley discussed earlier, namely the large customer contract renegotiation and the timing of significant gift card revenue recognition, we still believe it is likely we will achieve these targets in Q4. Regarding cash flow, we ended the quarter with $16.1 million in cash and short-term investments. Free cash flow usage was down considerably from $6.9 million in Q2 last year to $5 million in Q2 this year. Excluding $900,000 of previously accrued severance costs from Q1, which were paid in Q2, and $300,000 of the $600,000 of higher legal costs that were paid during the quarter, free cash flow usage would have been only $3.8 million for the quarter. Free cash flow was also negatively impacted by the timing of customer receipts in Q2, which we expect will reverse in the second half of 2025. As I noted earlier, we still have not fully realized all the cash cost savings from our reorganization and streamlining efforts put in place earlier this year, which are estimated to total $22 million on an annualized basis. As those savings start to be fully realized and with forecasted revenue growth, we expect Q3 cash flow usage to be much lower than Q2, even when factoring in the payment of the remaining $300,000 of legal costs referenced above, and we believe we are likely to deliver positive free cash flow in Q4. For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that has been filed with the SEC. I will now turn the call back over to Riley for final remarks. Thank you, Charles. In the wake of the relentless acceleration of AI models and agents, a vacuum of trust and authenticity is being created. Trust is fast becoming the only currency that matters, and the future will belong to companies that make that currency scalable. We believe Digimarc is ideally positioned to lead that charge. We are focused on delivering a future where humans and intelligent systems alike can verify what's real, protect what matters, and move forward with confidence. We are focused on filling the ever-expanding vacuum by positioning ourselves to deliver trust in every interaction spanning both the physical and digital worlds. We are building the trust layer for the modern world, a layer that is needed now more than ever and is forming a massive opportunity we were created to deliver. I would like to conclude this call by once again thanking my amazing teammates. Reorganizing our business to increase our focus has been extremely challenging but absolutely necessary to achieve the results we know we must deliver: fast, profitable, and durable growth. I believe we are positioned to win and are on the precipice of scalable and repeatable in our commercial business. I'm excited to share our progress, especially in the quarters to come. Operator will now open the call for questions. Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while the poll for questions. Our first question comes from Jeff Van Rhee with Craig-Hallum Capital Group. Please go ahead. Great, thanks. Thanks for taking the question. A couple for me on the, Charles, you mentioned the run rate expenses have come down. What was the, what is the GAAP OpEx run rate at the end of the quarter? On the non-GAAP operating expense run rate? Yeah, GAAP or non-GAAP at the end of Q2. You said it came down quite a bit. I'm just trying to figure out how far you are. On non-GAAP or non-GAAP? Yeah, we were at $8.9 million of non-GAAP operating expenses for the quarter. We expect that that's going to continue to come down some as we start to realize the full benefit of all of our streamlining efforts. I guess what I was saying is, I know it was $8.9 million for the quarter. Based on the cuts you've made, how much lower than that $8.9 million quarterly rate is your run rate right now? Yeah, I'm not going to give exact guidance, but there's still a significant amount of savings that we can generate in Q3 and Q4. Yeah, just. That's just to be fair on that. There is more, even looking at our current monthly or weekly run rate, there's still more ahead of us from non-headcount savings. Got it. That's helpful. On the central bank business, do you have visibility into the forward year? This year, I think you had said expect down 10%, 15%, and that's kind of what we've seen. Do the, I don't know when you get an indication, just when do you get an idea of what next year looks like there? Yeah, Jeff, we do have usually a full year of visibility, but again, we wouldn't provide guidance unless we expect material changes in our business. We generally have at least 12-18 months of kind of forward-looking visibility because they commit to a sale basically a year in advance. We have fairly good visibility there. Okay. I mean, historically, it had been kind of flattish. You can't share if it's kind of flattish or it continues this roughly 10% decline? If we expected a material difference, then that's something that we would disclose. The Europe customer that you mentioned. You could assume that means it's not going to be materially different from 2025. Okay. The European customer that you mentioned in the quarter, nice ARR value to that. Was that signed in the quarter, and did that impact the reported ARR? Yeah, it was at the close. Sorry to interrupt. Yes, it was effective during Q2 and is included in ARR, although that contract, as Riley references, is expected to grow in multiple years. Only the first year is reflected in ARR at this point in time. There's some potential built-in basically upsell in future years under that contract. Okay. All right. I'll leave it there. Thank you. Thanks, Jeff. Thank you. Ladies and gentlemen, a reminder to all the participants, if you would like to ask a question, please press star and one on your telephone keypad. Our next question comes from Jeff Bernstein with Silverberg Bernstein Capital. Please go ahead. Yeah, hi guys. Just on the gift card business, you cited a lot of different constituents and sort of supply chain touchpoints that you had to make to get the first cards in the market. Can you just give us a kind of a top-down on, you know, how many card vendors are there for you guys to work with? Do you have to retouch a lot of these points again for each one, or is a lot of that work done? It sounds like in terms of brands, you actually are touching several brands already that will go into the retailer that you talked about. Just flesh out the mechanics of all that. I'm not sure I exactly understand the question, Jeff. Are you asking how many brands we're working with, how many retailers? No, I'm asking, yeah, it's what's important. Is it just the gift card companies? And if so, are there four and we just got to get three more? Got it. Do you have to retouch all scanners? Do you have to retouch brands? Do you have to retouch retailers? Does it all go through, you know, three gift card guys you have to win? Just give us the whole breakdown of how this all works. How much time you got? I'll try to give you the high-level flyby, Jeff, to the right question. We are predominantly going to market through the gift card manufacturers, i.e., the printers. That is a relatively concentrated industry. There are, you know, tens globally, but a lot more concentrated. Think of the 80/20 rule. Those will, for the most part, be our customer. There are going to be one or two people we're going to go to market with directly. Going back to what I said, the team has done an incredible job when you're rolling out a revolutionary new technology, right? Think about the gift card industry. All of their, this is a massive existential problem that they are facing. They're critically, you know, they're hyper-focused on solving it. They're currently fighting it using analog technologies. That's what makes us so much different. We're better. We're cheaper. We're also, for the first time, a technology solution, which means we're better today, and we're going to have a roadmap for the next 20 years as long as we continue to join this industry to fight this massive, massive fraud. When you're rolling out a revolutionary new technology and also trying to not disrupt existing workflow, that's a really tall task. I think the team did a really good job and planted a go-to-market strategy, which is why we're going to market through these gift card manufacturers or printers. That's number one. The gift card printers work with all of the brands. I mean, that's obviously how the brands get their markets, their cards created. They're going to be discussing our new solution with their customers. Also key in this whole industry is something called the gift card networks. These are like Blackhawk and InComm are the two dominant ones. They touch all of the brands. They're also having conversations with the brands about new security solutions. They also talk to all the retailers. When you walk into a retailer store and you see called Gift Card Mall, but like a rack full of gift cards, that's either probably InComm or Blackhawk's mall. They're a key part of both the brands as well as the retailers. Finally, you're right, we absolutely do need our software running at the front of store of these retailers. This is something that, you know, we've had our presence, our footprint in most of the major scanners for years now. There is an upgrade to our software. That's part of our solution. We're not just solving, we're not just applying technology to the gift cards, we're applying it to the detection. It becomes really, really scalable because we are a known entity that's been running in a lot of these scanners. Whether or not it's turned on, there's obviously massive retailers where it is turned on. It's just a matter of getting that firmware pushed. These big retailers, some of them update their firmware a lot, and just a regular cadence, let alone for a reason like this. This is a massive problem estimated just in the U.S. alone, north of $4 billion. The loss to the retailers is multiples of that. That's pretty much it, Jeff. I don't know if that was a. No, that's great. That's what I was looking for. That's fine. We can do more offline, but that was generally what I was. I'm sure we will. Thanks, Jeff. Thank you. Ladies and gentlemen, at this time, there are no further questions. The conference of Digimarc Corporation has now concluded. Thank you for your participation. You may now disconnect your lines. Thank you.

Speaker 3: Ladies and gentlemen, greetings and welcome to the Digimarc Corporation Q2 2025 earnings conference call. At this time, all participants are in the listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Karamanos. Please go ahead. Ladies and gentlemen, greetings and welcome to the Digimarc Corporation Q2 2025 earnings conference call. ladies and gentlemen greetings and welcome to the digimarc corporation q2 2025 earnings conference call At this time, all participants are in the listen-only mode. at this time all participants are in the listen-only mode A brief question and answer session will follow the formal presentation. a brief question and answer session will follow the formal presentation If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. if anyone should require operator assistance during the conference please press star and zero on your telephone keypad As a reminder, this conference is being recorded. as a reminder this conference is being recorded It is now my pleasure to introduce your host, George Karamanos. it is now my pleasure to introduce your host george karamanos Please go ahead. please go ahead

Speaker 7: Thank you very much. Welcome, everyone, to our Q2 conference call. Riley McCormack, our CEO, and Charles Beck, our CFO, are with me on the call. On the call today, we will provide a business update and discuss Q2 2025 financial results. This will be followed by a question and answer form. We have posted our prepared remarks in the Investor Relations section of our website and will archive this webcast there. For those of you dialing in, we have changed the format of our prepared remarks and will be simulcasting a presentation that Riley and Charles 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. Thank you very much. thank you very much Welcome, everyone, to our Q2 conference call. welcome everyone to our q2 conference call Riley McCormack, our CEO, and Charles Beck, our CFO, are with me on the call. riley mccormack our ceo and charles beck our cfo are with me on the call On the call today, we will provide a business update and discuss Q2 2025 financial results. on the call today we will provide a business update and discuss q2 2025 financial results This will be followed by a question and answer form. this will be followed by a question and answer form We have posted our prepared remarks in the Investor Relations section of our website and will archive this webcast there. we have posted our prepared remarks in the investor relations section of our website and will archive this webcast there For those of you dialing in, we have changed the format of our prepared remarks and will be simulcasting a presentation that Riley and Charles will walk through today. for those of you dialing in we have changed the format of our prepared remarks and will be simulcasting a presentation that riley and charles 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. 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. 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 could cause actual results to differ materially. Riley will now provide a business update. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially Riley will now provide a business update. riley will now provide a business update

Speaker 4: Thank you, George, and hello, everyone. On this call, we will walk through Digimarc's Q2 performance, highlight our strategic progress across product innovation and commercial execution, including the pending launch of our gift card solution, share updates on our financial metrics such as ARR and cash burn, and provide clarity on where we are focused heading into the second half of the year. In Q2, we made significant progress toward launching our gift card solution, generated new ARR from a European packaging customer through a multi-year committed contract that should generate near seven figures next year, and had several upsell ARR wins with existing customers. We delivered our next-generation audio digital watermark to enable accurate compensation for creators and safeguard sensitive data. Thank you, George, and hello, everyone. thank you george and hello everyone On this call, we will walk through Digimarc's Q2 performance, highlight our strategic progress across product innovation and commercial execution, including the pending launch of our gift card solution, share updates on our financial metrics such as ARR and cash burn, and provide clarity on where we are focused heading into the second half of the year. on this call we will walk through digimarc's q2 performance highlight our strategic progress across product innovation and commercial execution including the pending launch of our gift card solution share updates on our financial metrics such as arr and cash burn and provide clarity on where we are focused heading into the second half of the year In Q2, we made significant progress toward launching our gift card solution, generated new ARR from a European packaging customer through a multi-year committed contract that should generate near seven figures next year, and had several upsell ARR wins with existing customers. in q2 we made significant progress toward launching our gift card solution generated new arr from a european packaging customer through a multi-year committed contract that should generate near seven figures next year and had several upsell arr wins with existing customers We delivered our next-generation audio digital watermark to enable accurate compensation for creators and safeguard sensitive data. we delivered our next-generation audio digital watermark to enable accurate compensation for creators and safeguard sensitive data We were recognized in Gartner's hype cycle as a key vendor in the emerging trust ops category, alongside the likes of Microsoft and Google, and aligned with McKinsey's identification of digital trust as one of the top technology trends shaping the future. We also completed our corporate reorganization in the second quarter and are seeing significant benefits across the organization as a result. Financially, the reorganization has resulted in a meaningful reduction in operating expenses and cash usage, and we remain on track to deliver positive free cash flow by Q4 2025. Operationally, it has allowed us to increase our focus on the areas most likely to deliver the scalable and repeatable business we must always focus on delivering. I would like to thank all of my teammates for their hard work in effecting this important step in our continued evolution. We were recognized in Gartner's hype cycle as a key vendor in the emerging trust ops category, alongside the likes of Microsoft and Google, and aligned with McKinsey's identification of digital trust as one of the top technology trends shaping the future. we were recognized in gartner's hype cycle as a key vendor in the emerging trust ops category alongside the likes of microsoft and google and aligned with mckinsey's identification of digital trust as one of the top technology trends shaping the future We also completed our corporate reorganization in the second quarter and are seeing significant benefits across the organization as a result. we also completed our corporate reorganization in the second quarter and are seeing significant benefits across the organization as a result Financially, the reorganization has resulted in a meaningful reduction in operating expenses and cash usage, and we remain on track to deliver positive free cash flow by Q4 2025. financially the reorganization has resulted in a meaningful reduction in operating expenses and cash usage and we remain on track to deliver positive free cash flow by q4 2025 Operationally, it has allowed us to increase our focus on the areas most likely to deliver the scalable and repeatable business we must always focus on delivering. operationally it has allowed us to increase our focus on the areas most likely to deliver the scalable and repeatable business we must always focus on delivering I would like to thank all of my teammates for their hard work in effecting this important step in our continued evolution. i would like to thank all of my teammates for their hard work in effecting this important step in our continued evolution While not an easy process, we are seeing positive results in our ability to execute on our business. As has been shared previously, our three focus areas are retail loss prevention, product authentication, and digital authentication. We have several significant ARR generation opportunities in front of us, such as protecting the world's gift cards that exhibit strong demand pull characteristics with the goal of much quicker time to revenue relative to some of our identification use cases. The decision to focus our time and resources on these three core areas in the authentication space was supported by deep market research, validated by customer feedback, and further confirmed independently by work we commissioned from our consulting partners. With that said, we remain firm believers in our positioning and our ability to execute on the various ecosystem-driven opportunities in the identification space as they eventually become ripe enough to pursue. While not an easy process, we are seeing positive results in our ability to execute on our business. while not an easy process we are seeing positive results in our ability to execute on our business As has been shared previously, our three focus areas are retail loss prevention, product authentication, and digital authentication. as has been shared previously our three focus areas are retail loss prevention product authentication and digital authentication We have several significant ARR generation opportunities in front of us, such as protecting the world's gift cards that exhibit strong demand pull characteristics with the goal of much quicker time to revenue relative to some of our identification use cases. we have several significant arr generation opportunities in front of us such as protecting the world's gift cards that exhibit strong demand pull characteristics with the goal of much quicker time to revenue relative to some of our identification use cases The decision to focus our time and resources on these three core areas in the authentication space was supported by deep market research, validated by customer feedback, and further confirmed independently by work we commissioned from our consulting partners. the decision to focus our time and resources on these three core areas in the authentication space was supported by deep market research validated by customer feedback and further confirmed independently by work we commissioned from our consulting partners With that said, we remain firm believers in our positioning and our ability to execute on the various ecosystem-driven opportunities in the identification space as they eventually become ripe enough to pursue. with that said we remain firm believers in our positioning and our ability to execute on the various ecosystem-driven opportunities in the identification space as they eventually become ripe enough to pursue Our greatest near-term opportunity is retail loss prevention, and more specifically, our gift card solution. We made substantial progress during the quarter on commercializing our solutions to address gift card fraud, an ever-increasing existential threat the industry is hyper-focused on solving. We are proud to announce that the first Digimarc protected gift cards have been received by our first retailer and will appear on shelves next week. While the initial rollout took slightly longer than planned for reasons outside of our control, it includes gift cards from multiple different brands, including some of the largest companies in the world. The interest from these brands reflects the detailed joint success planning we have been undertaking with members of the gift card industry ecosystem, including gift card network companies, gift card manufacturers, card manufacturing equipment providers, label providers, point-of-sale scanner manufacturers, and of course, retailers and brands. Our greatest near-term opportunity is retail loss prevention, and more specifically, our gift card solution. our greatest near-term opportunity is retail loss prevention and more specifically our gift card solution We made substantial progress during the quarter on commercializing our solutions to address gift card fraud, an ever-increasing existential threat the industry is hyper-focused on solving. we made substantial progress during the quarter on commercializing our solutions to address gift card fraud an ever-increasing existential threat the industry is hyper-focused on solving We are proud to announce that the first Digimarc protected gift cards have been received by our first retailer and will appear on shelves next week. we are proud to announce that the first digimarc protected gift cards have been received by our first retailer and will appear on shelves next week While the initial rollout took slightly longer than planned for reasons outside of our control, it includes gift cards from multiple different brands, including some of the largest companies in the world. while the initial rollout took slightly longer than planned for reasons outside of our control it includes gift cards from multiple different brands including some of the largest companies in the world The interest from these brands reflects the detailed joint success planning we have been undertaking with members of the gift card industry ecosystem, including gift card network companies, gift card manufacturers, card manufacturing equipment providers, label providers, point-of-sale scanner manufacturers, and of course, retailers and brands. the interest from these brands reflects the detailed joint success planning we have been undertaking with members of the gift card industry ecosystem including gift card network companies gift card manufacturers card manufacturing equipment providers label providers point-of-sale scanner manufacturers and of course retailers and brands This joint success planning positions us to increase long-term revenue velocity as these initial cards hit shelves. We intend to predominantly sell our solution to gift card manufacturers who will apply our technology during their normal printing process before delivering the cards as they currently do today. We have built our go-to-market strategy around trying to solve for two often conflicting goals: providing a revolutionary new solution and minimizing impact on the ecosystem's existing workflow. I think the team has done an incredible job of doing just that. This joint success planning positions us to increase long-term revenue velocity as these initial cards hit shelves. this joint success planning positions us to increase long-term revenue velocity as these initial cards hit shelves We intend to predominantly sell our solution to gift card manufacturers who will apply our technology during their normal printing process before delivering the cards as they currently do today. we intend to predominantly sell our solution to gift card manufacturers who will apply our technology during their normal printing process before delivering the cards as they currently do today We have built our go-to-market strategy around trying to solve for two often conflicting goals: providing a revolutionary new solution and minimizing impact on the ecosystem's existing workflow. we have built our go-to-market strategy around trying to solve for two often conflicting goals providing a revolutionary new solution and minimizing impact on the ecosystem's existing workflow I think the team has done an incredible job of doing just that. i think the team has done an incredible job of doing just that From jointly building threat models that clearly show how our existing solution already reduces fraud and how our roadmap will drive even greater results, to creating a detailed interactive pilot plan that allows for near real-time impact measurement to all the work in between, we've invested the time and resources to set up our solution for success today, as well as accelerate the pace of adoption in the future. As we've shared in the past, one of the most powerful facets of this opportunity is that laggards in the adoption of our gift card solution will bear the compounded cost of an increasing percentage of an increasing amount of fraud. We and our partners believe this positions us for a powerful demand pull dynamic. Moreover, this is a widely held view across the industry, and the interest of those not yet included in next week's rollout has continued to increase. From jointly building threat models that clearly show how our existing solution already reduces fraud and how our roadmap will drive even greater results, to creating a detailed interactive pilot plan that allows for near real-time impact measurement to all the work in between, we've invested the time and resources to set up our solution for success today, as well as accelerate the pace of adoption in the future. from jointly building threat models that clearly show how our existing solution already reduces fraud and how our roadmap will drive even greater results to creating a detailed interactive pilot plan that allows for near real-time impact measurement to all the work in between we've invested the time and resources to set up our solution for success today as well as accelerate the pace of adoption in the future As we've shared in the past, one of the most powerful facets of this opportunity is that laggards in the adoption of our gift card solution will bear the compounded cost of an increasing percentage of an increasing amount of fraud. as we've shared in the past one of the most powerful facets of this opportunity is that laggards in the adoption of our gift card solution will bear the compounded cost of an increasing percentage of an increasing amount of fraud We and our partners believe this positions us for a powerful demand pull dynamic. we and our partners believe this positions us for a powerful demand pull dynamic Moreover, this is a widely held view across the industry, and the interest of those not yet included in next week's rollout has continued to increase. moreover this is a widely held view across the industry and the interest of those not yet included in next week's rollout has continued to increase In parallel to setting up this initial rollout for maximum success, we've been planning additional rollouts with other industry players as well. While it is hard to be certain ahead of some critical upcoming events, what impact, if any, the slight delay in our initial rollout will have on our 2025 revenue, we have lowered our internal estimate for 2025 gift card revenue. Next week marks a critical milestone and accomplishment in our work to catalyze the gift card industry towards meaningful adoption of our solution, and we believe whatever impact the pilot delay might cause to our 2025 revenue, if any, will be paid back next year and beyond. Turning now to our focus on product authentication, I am thrilled to announce we signed a multi-year committed deal with a large European packaging company that should represent near seven figures of ARR starting next year and beyond. In parallel to setting up this initial rollout for maximum success, we've been planning additional rollouts with other industry players as well. in parallel to setting up this initial rollout for maximum success we've been planning additional rollouts with other industry players as well While it is hard to be certain ahead of some critical upcoming events, what impact, if any, the slight delay in our initial rollout will have on our 2025 revenue, we have lowered our internal estimate for 2025 gift card revenue. while it is hard to be certain ahead of some critical upcoming events what impact if any the slight delay in our initial rollout will have on our 2025 revenue we have lowered our internal estimate for 2025 gift card revenue Next week marks a critical milestone and accomplishment in our work to catalyze the gift card industry towards meaningful adoption of our solution, and we believe whatever impact the pilot delay might cause to our 2025 revenue, if any, will be paid back next year and beyond. next week marks a critical milestone and accomplishment in our work to catalyze the gift card industry towards meaningful adoption of our solution and we believe whatever impact the pilot delay might cause to our 2025 revenue if any will be paid back next year and beyond Turning now to our focus on product authentication, I am thrilled to announce we signed a multi-year committed deal with a large European packaging company that should represent near seven figures of ARR starting next year and beyond. turning now to our focus on product authentication i am thrilled to announce we signed a multi-year committed deal with a large european packaging company that should represent near seven figures of arr starting next year and beyond In addition to providing our customer the ability to resell Digimarc Validate and Digimarc Automate directly, this deal allows our partner to roll out a deploy-now, activate-later offering on all the packaging they produce, feeding the market for, among other things, potential future Digimarc Recycle deals. Just last week, I had dinner with the CEO of this valued customer, and he shared his plans for utilizing our partnership to drive messaging at an upcoming conference, stating that he believes our partnership will enable his company to stand out amongst their peers and drive new business their way. More immediately, he wants to arrange an opportunity for us to spend time with a sister company that he believes is interested in pursuing a similar relationship with us. In addition to providing our customer the ability to resell Digimarc Validate and Digimarc Automate directly, this deal allows our partner to roll out a deploy-now, activate-later offering on all the packaging they produce, feeding the market for, among other things, potential future Digimarc Recycle deals. in addition to providing our customer the ability to resell digimarc validate and digimarc automate directly this deal allows our partner to roll out a deploy-now activate-later offering on all the packaging they produce feeding the market for among other things potential future digimarc recycle deals Just last week, I had dinner with the CEO of this valued customer, and he shared his plans for utilizing our partnership to drive messaging at an upcoming conference, stating that he believes our partnership will enable his company to stand out amongst their peers and drive new business their way. just last week i had dinner with the ceo of this valued customer and he shared his plans for utilizing our partnership to drive messaging at an upcoming conference stating that he believes our partnership will enable his company to stand out amongst their peers and drive new business their way More immediately, he wants to arrange an opportunity for us to spend time with a sister company that he believes is interested in pursuing a similar relationship with us. more immediately he wants to arrange an opportunity for us to spend time with a sister company that he believes is interested in pursuing a similar relationship with us Nothing is more powerful when driving to a scalable and repeatable business than delighting existing customers, and our focus is, as it always is, on continuing to win our customers' business every day. We also signed upsell deals with three of our existing Digimarc Validate customers, reflecting both increased contract value and the expansion of our solution to new geographies and new brands. As we have repeatedly stated, when we solve our customers' most challenging problems, we expect to be an upsell and cross-sell company for a long time. While still early in that journey, the results are proving this thesis correct. Brands face rampant counterfeiting and IP theft, and our secure and scalable, covert and connected solutions provide far superior results compared to competing analog solutions such as tags, codes, inks, and labels. Nothing is more powerful when driving to a scalable and repeatable business than delighting existing customers, and our focus is, as it always is, on continuing to win our customers' business every day. nothing is more powerful when driving to a scalable and repeatable business than delighting existing customers and our focus is as it always is on continuing to win our customers' business every day We also signed upsell deals with three of our existing Digimarc Validate customers, reflecting both increased contract value and the expansion of our solution to new geographies and new brands. we also signed upsell deals with three of our existing digimarc validate customers reflecting both increased contract value and the expansion of our solution to new geographies and new brands As we have repeatedly stated, when we solve our customers' most challenging problems, we expect to be an upsell and cross-sell company for a long time. as we have repeatedly stated when we solve our customers' most challenging problems we expect to be an upsell and cross-sell company for a long time While still early in that journey, the results are proving this thesis correct. while still early in that journey the results are proving this thesis correct Brands face rampant counterfeiting and IP theft, and our secure and scalable, covert and connected solutions provide far superior results compared to competing analog solutions such as tags, codes, inks, and labels. brands face rampant counterfeiting and ip theft and our secure and scalable covert and connected solutions provide far superior results compared to competing analog solutions such as tags codes inks and labels Touching now on our digital authentication solutions, as mentioned on our last two calls, we chose to be conservative about this area's contribution to 2025 ARR. We made this decision to help ensure we remain focused on optimizing our work in this area for the long term. We have already exceeded these conservative assumptions. As announced in a recent press release, we recently delivered a next-generation audio digital watermark architected to address the unprecedented challenges rights holders, content creators, companies, and governments face with the explosion of digital and AI-generated content and capabilities. We recently signed a new deal with SourceAudio to embed our audio watermarks into production music for TV and commercials in order to monitor royalty rights across over 150 national channels and 100 local stations. Touching now on our digital authentication solutions, as mentioned on our last two calls, we chose to be conservative about this area's contribution to 2025 ARR. touching now on our digital authentication solutions as mentioned on our last two calls we chose to be conservative about this area's contribution to 2025 arr We made this decision to help ensure we remain focused on optimizing our work in this area for the long term. we made this decision to help ensure we remain focused on optimizing our work in this area for the long term We have already exceeded these conservative assumptions. we have already exceeded these conservative assumptions As announced in a recent press release, we recently delivered a next-generation audio digital watermark architected to address the unprecedented challenges rights holders, content creators, companies, and governments face with the explosion of digital and AI-generated content and capabilities. as announced in a recent press release we recently delivered a next-generation audio digital watermark architected to address the unprecedented challenges rights holders content creators companies and governments face with the explosion of digital and ai-generated content and capabilities We recently signed a new deal with Source Audio to embed our audio watermarks into production music for TV and commercials in order to monitor royalty rights across over 150 national channels and 100 local stations. we recently signed a new deal with source audio to embed our audio watermarks into production music for tv and commercials in order to monitor royalty rights across over 150 national channels and 100 local stations Additionally, we have multiple deals in the pipeline as a result of our new offering, including technical testing with an AI company looking to both comply with EU regulation as well as automate internal authentication. Our next-generation offering has also caught the attention of an important industry group that is searching for solutions to an unmet need arising from the emergence of AI. We look forward to proving our value to this gatekeeper and unlocking the opportunities on the other side. Q2 also saw us grow the relationship with the Fortune 100 customer we mentioned on the last call, signing a low six-figure deal that we believe could grow close to seven figures starting in year two and beyond. In addition to our belief that this customer presents a future upsell opportunity, they have offered to be a reference account to other prospects in the future. Additionally, we have multiple deals in the pipeline as a result of our new offering, including technical testing with an AI company looking to both comply with EU regulation as well as automate internal authentication. additionally we have multiple deals in the pipeline as a result of our new offering including technical testing with an ai company looking to both comply with eu regulation as well as automate internal authentication Our next-generation offering has also caught the attention of an important industry group that is searching for solutions to an unmet need arising from the emergence of AI. our next-generation offering has also caught the attention of an important industry group that is searching for solutions to an unmet need arising from the emergence of ai We look forward to proving our value to this gatekeeper and unlocking the opportunities on the other side. we look forward to proving our value to this gatekeeper and unlocking the opportunities on the other side Q2 also saw us grow the relationship with the Fortune 100 customer we mentioned on the last call, signing a low six-figure deal that we believe could grow close to seven figures starting in year two and beyond. q2 also saw us grow the relationship with the fortune 100 customer we mentioned on the last call signing a low six-figure deal that we believe could grow close to seven figures starting in year two and beyond In addition to our belief that this customer presents a future upsell opportunity, they have offered to be a reference account to other prospects in the future. in addition to our belief that this customer presents a future upsell opportunity they have offered to be a reference account to other prospects in the future Additionally, the implementation of our solution is being led by one of the world's largest system integrators. Success with our shared mutual customer should open future doors for us to partner with this industry giant to deter insider threats and safeguard sensitive data for additional customers across industries and sectors worldwide. The twin catalyst of the relentless advance of AI models and agents and the rapid progression of content credentials has created a wave of awareness and urgency for a robust, scalable, secure, and imperceptible, perpetual, and deterministic solution to address the many trust and authenticity problems growing in the digital world. We expect this space to continue its recent noteworthy growth and evolution. Additionally, the implementation of our solution is being led by one of the world's largest system integrators. additionally the implementation of our solution is being led by one of the world's largest system integrators Success with our shared mutual customer should open future doors for us to partner with this industry giant to deter insider threats and safeguard sensitive data for additional customers across industries and sectors worldwide. success with our shared mutual customer should open future doors for us to partner with this industry giant to deter insider threats and safeguard sensitive data for additional customers across industries and sectors worldwide The twin catalyst of the relentless advance of AI models and agents and the rapid progression of content credentials has created a wave of awareness and urgency for a robust, scalable, secure, and imperceptible, perpetual, and deterministic solution to address the many trust and authenticity problems growing in the digital world. the twin catalyst of the relentless advance of ai models and agents and the rapid progression of content credentials has created a wave of awareness and urgency for a robust scalable secure and imperceptible perpetual and deterministic solution to address the many trust and authenticity problems growing in the digital world We expect this space to continue its recent noteworthy growth and evolution. we expect this space to continue its recent noteworthy growth and evolution While some of the nascent digital use cases might be served, at least in the interim, with good enough offerings, what has become apparent to us in the last few months is that the aforementioned twin catalysts are opening the market for use cases where good enough just simply will not do. Our technology, 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 surface the ever-growing wave. We pioneered this space. This is quite literally what we were born to do, and the market is finally here. Although our focus over the near term will be on our three core focus areas, we continue to believe in our positioning and ability to execute in other areas when those markets are ripe for addressing. While some of the nascent digital use cases might be served, at least in the interim, with good enough offerings, what has become apparent to us in the last few months is that the aforementioned twin catalysts are opening the market for use cases where good enough just simply will not do. while some of the nascent digital use cases might be served at least in the interim with good enough offerings what has become apparent to us in the last few months is that the aforementioned twin catalysts are opening the market for use cases where good enough just simply will not do Our technology, 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 surface the ever-growing wave. our technology 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 surface the ever-growing wave We pioneered this space. we pioneered this space This is quite literally what we were born to do, and the market is finally here. this is quite literally what we were born to do and the market is finally here Although our focus over the near term will be on our three core focus areas, we continue to believe in our positioning and ability to execute in other areas when those markets are ripe for addressing. although our focus over the near term will be on our three core focus areas we continue to believe in our positioning and ability to execute in other areas when those markets are ripe for addressing Before I turn the call over to Charles, I want to address a development that will have a negative future impact on our near-term top-line results. We are currently in contract renegotiations with a large retailer customer of a legacy solution, which will most likely result in a reduction of up to $3 million in annual revenue. As these conversations are very recent and currently ongoing, we are not able to estimate the exact impact at this time. This development also reinforces our decision to focus on our three authentication markets and building the trust layer for the modern world. Solving urgent problems provides stronger protection from changes in customer strategic focus than some of our legacy solutions did. Before I turn the call over to Charles, I want to address a development that will have a negative future impact on our near-term top-line results. before i turn the call over to charles i want to address a development that will have a negative future impact on our near-term top-line results We are currently in contract renegotiations with a large retailer customer of a legacy solution, which will most likely result in a reduction of up to $3 million in annual revenue. we are currently in contract renegotiations with a large retailer customer of a legacy solution which will most likely result in a reduction of up to $3 million in annual revenue As these conversations are very recent and currently ongoing, we are not able to estimate the exact impact at this time. as these conversations are very recent and currently ongoing we are not able to estimate the exact impact at this time This development also reinforces our decision to focus on our three authentication markets and building the trust layer for the modern world. this development also reinforces our decision to focus on our three authentication markets and building the trust layer for the modern world Solving urgent problems provides stronger protection from changes in customer strategic focus than some of our legacy solutions did. solving urgent problems provides stronger protection from changes in customer strategic focus than some of our legacy solutions did Moreover, this retailer is an important gift card vendor, and our focus is on maximizing future revenue opportunities for our gift card solution, not on trying to maximize revenue from a use case we haven't sold in many years. We believe we continue to have an excellent relationship with this customer and that there is much to accomplish with them over the coming years. We are excited to continue to help them win. We are also energized by moving Digimarc into a future where we are not overly reliant on any one customer and can move more quickly with the market. We are confident in the opportunities provided in our key three focus areas and are excited by the results our increased focus are already beginning to deliver. Moreover, this retailer is an important gift card vendor, and our focus is on maximizing future revenue opportunities for our gift card solution, not on trying to maximize revenue from a use case we haven't sold in many years. moreover this retailer is an important gift card vendor and our focus is on maximizing future revenue opportunities for our gift card solution not on trying to maximize revenue from a use case we haven't sold in many years We believe we continue to have an excellent relationship with this customer and that there is much to accomplish with them over the coming years. we believe we continue to have an excellent relationship with this customer and that there is much to accomplish with them over the coming years We are excited to continue to help them win. we are excited to continue to help them win We are also energized by moving Digimarc into a future where we are not overly reliant on any one customer and can move more quickly with the market. we are also energized by moving digimarc into a future where we are not overly reliant on any one customer and can move more quickly with the market We are confident in the opportunities provided in our key three focus areas and are excited by the results our increased focus are already beginning to deliver. we are confident in the opportunities provided in our key three focus areas and are excited by the results our increased focus are already beginning to deliver Ecosystem-based sales are great because of their size, but the sales cycles can be slow, expensive, and multiple constituencies must adopt before meaningful ROI is unlocked. Our strategic shift allows for the building of a scalable and repeatable business where we can fail fast, iterate, and win often. Even with the expected top-line impact of this contract renegotiation, we still anticipate being free cash flow positive in Q4. Reorganizing our company to focus on our authentication use cases was a difficult but necessary decision, and we appreciate our investors' patience as we navigate this transition, which we are more confident than ever is the best strategy for the company and will create the best outcome for investors. Even if timing around meaningful revenue generation from our new products were to slip one to two quarters, we believe the company is well positioned to win and reach significant scale. Ecosystem-based sales are great because of their size, but the sales cycles can be slow, expensive, and multiple constituencies must adopt before meaningful ROI is unlocked. ecosystem-based sales are great because of their size but the sales cycles can be slow expensive and multiple constituencies must adopt before meaningful roi is unlocked Our strategic shift allows for the building of a scalable and repeatable business where we can fail fast, iterate, and win often. our strategic shift allows for the building of a scalable and repeatable business where we can fail fast iterate and win often Even with the expected top-line impact of this contract renegotiation, we still anticipate being free cash flow positive in Q4. even with the expected top-line impact of this contract renegotiation we still anticipate being free cash flow positive in q4 Reorganizing our company to focus on our authentication use cases was a difficult but necessary decision, and we appreciate our investors' patience as we navigate this transition, which we are more confident than ever is the best strategy for the company and will create the best outcome for investors. reorganizing our company to focus on our authentication use cases was a difficult but necessary decision and we appreciate our investors' patience as we navigate this transition which we are more confident than ever is the best strategy for the company and will create the best outcome for investors Even if timing around meaningful revenue generation from our new products were to slip one to two quarters, we believe the company is well positioned to win and reach significant scale. even if timing around meaningful revenue generation from our new products were to slip one to two quarters we believe the company is well positioned to win and reach significant scale I will now turn the call over to Charles to discuss our financial results. I will now turn the call over to Charles to discuss our financial results. i will now turn the call over to charles to discuss our financial results

Speaker 1: Thank you, Riley, and hello, everyone. Ending ARR for Q2 was $15.9 million compared to $23.9 million for Q2 last year. The decrease reflects both the $5.8 million retailer contract that lapsed last year and $3.5 million from the DRS contract that lapsed in Q2 this year. Excluding these two headwinds, ending ARR grew $1.3 million year over year. That growth, however, was largely muted by higher other customer churn and our choosing to be strategically price aggressive on products outside of our focus areas, both of which had outsized impacts in the first half of 2025. As I stated on the last earnings call, we expected these impacts as we sharpened our go-to-market focus, and it is important to note that our ending ARR is in line with our original 2025 internal budget. Thank you, Riley, and hello, everyone. thank you riley and hello everyone Ending ARR for Q2 was $15.9 million compared to $23.9 million for Q2 last year. ending arr for q2 was $15.9 million compared to $23.9 million for q2 last year The decrease reflects both the $5.8 million retailer contract that lapsed last year and $3.5 million from the DRS contract that lapsed in Q2 this year. the decrease reflects both the $5.8 million retailer contract that lapsed last year and $3.5 million from the drs contract that lapsed in q2 this year Excluding these two headwinds, ending ARR grew $1.3 million year over year. excluding these two headwinds ending arr grew $1.3 million year over year That growth, however, was largely muted by higher other customer churn and our choosing to be strategically price aggressive on products outside of our focus areas, both of which had outsized impacts in the first half of 2025. that growth however was largely muted by higher other customer churn and our choosing to be strategically price aggressive on products outside of our focus areas both of which had outsized impacts in the first half of 2025 As I stated on the last earnings call, we expected these impacts as we sharpened our go-to-market focus, and it is important to note that our ending ARR is in line with our original 2025 internal budget. as i stated on the last earnings call we expected these impacts as we sharpened our go-to-market focus and it is important to note that our ending arr is in line with our original 2025 internal budget Total revenue was $8 million, a decrease of $2.4 million, or 23%, from $10.4 million in Q2 last year. Subscription revenue, which accounted for 58% of total revenue for the quarter, decreased 28% from $6.4 million to $4.6 million. The decrease reflects the impact of two expired contracts I just referenced. Service revenue decreased 15% from $4 million to $3.4 million, reflecting lower government service revenue from the central banks. The decrease is generally in line with our expectation of a 12%-14% decrease in program work for fiscal 2025 that we shared on the previous earnings call. Subscription gross profit margin, excluding amortization expense, was 85% for the quarter, down four percentage points from Q2 last year, reflecting the impact of lower subscription revenue. We anticipate that subscription gross profit margins may be lower next quarter as we work to consolidate our legacy platforms. Total revenue was $8 million, a decrease of $2.4 million, or 23%, from $10.4 million in Q2 last year. total revenue was $8 million a decrease of $2.4 million or 23% from $10.4 million in q2 last year Subscription revenue, which accounted for 58% of total revenue for the quarter, decreased 28% from $6.4 million to $4.6 million. subscription revenue which accounted for 58% of total revenue for the quarter decreased 28% from $6.4 million to $4.6 million The decrease reflects the impact of two expired contracts I just referenced. the decrease reflects the impact of two expired contracts i just referenced Service revenue decreased 15% from $4 million to $3.4 million, reflecting lower government service revenue from the central banks. service revenue decreased 15% from $4 million to $3.4 million reflecting lower government service revenue from the central banks The decrease is generally in line with our expectation of a 12%- 14% decrease in program work for fiscal 2025 that we shared on the previous earnings call. the decrease is generally in line with our expectation of a 12%- 14% decrease in program work for fiscal 2025 that we shared on the previous earnings call Subscription gross profit margin, excluding amortization expense, was 85% for the quarter, down four percentage points from Q2 last year, reflecting the impact of lower subscription revenue. subscription gross profit margin excluding amortization expense was 85% for the quarter down four percentage points from q2 last year reflecting the impact of lower subscription revenue We anticipate that subscription gross profit margins may be lower next quarter as we work to consolidate our legacy platforms. we anticipate that subscription gross profit margins may be lower next quarter as we work to consolidate our legacy platforms After the migrations are completed, we expect subscription gross margins to not only fully recover but to increase beyond current levels as we benefit from the efficiencies of the Illuminate platform. Service gross profit margin was 59% for the quarter, essentially flat with Q2 last year. Operating expenses were $13.1 million for the quarter, down $3.7 million, or 22%, from $16.8 million in Q2 last year. Included in operating expenses this quarter was $600,000 of legal expenses, largely related to an external shareholder matter. We do not expect these legal expenses to continue. Excluding these legal expenses, operating expenses were $4.3 million, or 26% lower than Q2 last year. The large reduction in costs reflects lower compensation costs due to the reorganization in Q1 this year. After the migrations are completed, we expect subscription gross margins to not only fully recover but to increase beyond current levels as we benefit from the efficiencies of the Illuminate platform. after the migrations are completed we expect subscription gross margins to not only fully recover but to increase beyond current levels as we benefit from the efficiencies of the illuminate platform Service gross profit margin was 59% for the quarter, essentially flat with Q2 last year. service gross profit margin was 59% for the quarter essentially flat with q2 last year Operating expenses were $13.1 million for the quarter, down $3.7 million, or 22%, from $16.8 million in Q2 last year. operating expenses were $13.1 million for the quarter down $3.7 million or 22% from $16.8 million in q2 last year Included in operating expenses this quarter was $600,000 of legal expenses, largely related to an external shareholder matter. included in operating expenses this quarter was $600,000 of legal expenses largely related to an external shareholder matter We do not expect these legal expenses to continue. we do not expect these legal expenses to continue Excluding these legal expenses, operating expenses were $4.3 million, or 26% lower than Q2 last year. excluding these legal expenses operating expenses were $4.3 million or 26% lower than q2 last year The large reduction in costs reflects lower compensation costs due to the reorganization in Q1 this year. the large reduction in costs reflects lower compensation costs due to the reorganization in q1 this year As we look forward, we expect to continue to see a reduction in our run rate of expenses as not all the benefits from our streamlining efforts, especially in the non-compensation cost areas, were fully realized yet in our Q2 results. Non-GAAP operating expenses, which excludes non-cash and non-recurring items, were $8.9 million for the quarter, down $5.2 million, or 37% from $14 million in Q2 last year. Again, the decrease is due to the impact of the reorganization and streamlining efforts, partially offset by $600,000 of higher legal expenses. Net loss per share for the quarter is $0.38 versus $0.43 in Q2 last year, while non-GAAP net loss per share for the quarter was $0.11 versus $0.23 in Q2 last year. Our internal plan for 2025 at the start of the year was to be non-GAAP profitable and free cash flow by no later than Q4. As we look forward, we expect to continue to see a reduction in our run rate of expenses as not all the benefits from our streamlining efforts, especially in the non-compensation cost areas, were fully realized yet in our Q2 results. as we look forward we expect to continue to see a reduction in our run rate of expenses as not all the benefits from our streamlining efforts especially in the non-compensation cost areas were fully realized yet in our q2 results Non-GAAP operating expenses, which excludes non-cash and non-recurring items, were $8.9 million for the quarter, down $5.2 million, or 37% from $14 million in Q2 last year. non-gaap operating expenses which excludes non-cash and non-recurring items were $8.9 million for the quarter down $5.2 million or 37% from $14 million in q2 last year Again, the decrease is due to the impact of the reorganization and streamlining efforts, partially offset by $600,000 of higher legal expenses. again the decrease is due to the impact of the reorganization and streamlining efforts partially offset by $600,000 of higher legal expenses Net loss per share for the quarter is $0.38 versus $0.43 in Q2 last year, while non-GAAP net loss per share for the quarter was $0.11 versus $0.23 in Q2 last year. net loss per share for the quarter is $0.38 versus $0.43 in q2 last year while non-gaap net loss per share for the quarter was $0.11 versus $0.23 in q2 last year Our internal plan for 2025 at the start of the year was to be non-GAAP profitable and free cash flow by no later than Q4. our internal plan for 2025 at the start of the year was to be non-gaap profitable and free cash flow by no later than q4 Even adjusting our plan to account for the risks to revenue Riley discussed earlier, namely the large customer contract renegotiation and the timing of significant gift card revenue recognition, we still believe it is likely we will achieve these targets in Q4. Regarding cash flow, we ended the quarter with $16.1 million in cash and short-term investments. Free cash flow usage was down considerably from $6.9 million in Q2 last year to $5 million in Q2 this year. Excluding $900,000 of previously accrued severance costs from Q1, which were paid in Q2, and $300,000 of the $600,000 of higher legal costs that were paid during the quarter, free cash flow usage would have been only $3.8 million for the quarter. Free cash flow was also negatively impacted by the timing of customer receipts in Q2, which we expect will reverse in the second half of 2025. Even adjusting our plan to account for the risks to revenue Riley discussed earlier, namely the large customer contract renegotiation and the timing of significant gift card revenue recognition, we still believe it is likely we will achieve these targets in Q4. even adjusting our plan to account for the risks to revenue riley discussed earlier namely the large customer contract renegotiation and the timing of significant gift card revenue recognition we still believe it is likely we will achieve these targets in q4 Regarding cash flow, we ended the quarter with $16.1 million in cash and short-term investments. regarding cash flow we ended the quarter with $16.1 million in cash and short-term investments Free cash flow usage was down considerably from $6.9 million in Q2 last year to $5 million in Q2 this year. free cash flow usage was down considerably from $6.9 million in q2 last year to $5 million in q2 this year Excluding $900,000 of previously accrued severance costs from Q1, which were paid in Q2, and $300,000 of the $600,000 of higher legal costs that were paid during the quarter, free cash flow usage would have been only $3.8 million for the quarter. excluding $900,000 of previously accrued severance costs from q1 which were paid in q2 and $300,000 of the $600,000 of higher legal costs that were paid during the quarter free cash flow usage would have been only $3.8 million for the quarter Free cash flow was also negatively impacted by the timing of customer receipts in Q2, which we expect will reverse in the second half of 2025. free cash flow was also negatively impacted by the timing of customer receipts in q2 which we expect will reverse in the second half of 2025 As I noted earlier, we still have not fully realized all the cash cost savings from our reorganization and streamlining efforts put in place earlier this year, which are estimated to total $22 million on an annualized basis. As those savings start to be fully realized and with forecasted revenue growth, we expect Q3 cash flow usage to be much lower than Q2, even when factoring in the payment of the remaining $300,000 of legal costs referenced above, and we believe we are likely to deliver positive free cash flow in Q4. For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that has been filed with the SEC. I will now turn the call back over to Riley for final remarks. As I noted earlier, we still have not fully realized all the cash cost savings from our reorganization and streamlining efforts put in place earlier this year, which are estimated to total $22 million on an annualized basis. as i noted earlier we still have not fully realized all the cash cost savings from our reorganization and streamlining efforts put in place earlier this year which are estimated to total $22 million on an annualized basis As those savings start to be fully realized and with forecasted revenue growth, we expect Q3 cash flow usage to be much lower than Q2, even when factoring in the payment of the remaining $300,000 of legal costs referenced above, and we believe we are likely to deliver positive free cash flow in Q4. as those savings start to be fully realized and with forecasted revenue growth we expect q3 cash flow usage to be much lower than q2 even when factoring in the payment of the remaining $300,000 of legal costs referenced above and we believe we are likely to deliver positive free cash flow in q4 For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that has been filed with the SEC. for further discussion of our financial results and risks and prospects for our business please see our form 10-q that has been filed with the sec I will now turn the call back over to Riley for final remarks. i will now turn the call back over to riley for final remarks

Speaker 4: Thank you, Charles. Thank you, Charles. thank you charles In the wake of the relentless acceleration of AI models and agents, a vacuum of trust and authenticity is being created. Trust is fast becoming the only currency that matters, and the future will belong to companies that make that currency scalable. We believe Digimarc is ideally positioned to lead that charge. We are focused on delivering a future where humans and intelligent systems alike can verify what's real, protect what matters, and move forward with confidence. We are focused on filling the ever-expanding vacuum by positioning ourselves to deliver trust in every interaction spanning both the physical and digital worlds. We are building the trust layer for the modern world, a layer that is needed now more than ever and is forming a massive opportunity we were created to deliver. I would like to conclude this call by once again thanking my amazing teammates. In the wake of the relentless acceleration of AI models and agents, a vacuum of trust and authenticity is being created. in the wake of the relentless acceleration of ai models and agents a vacuum of trust and authenticity is being created Trust is fast becoming the only currency that matters, and the future will belong to companies that make that currency scalable. trust is fast becoming the only currency that matters and the future will belong to companies that make that currency scalable We believe Digimarc is ideally positioned to lead that charge. we believe digimarc is ideally positioned to lead that charge We are focused on delivering a future where humans and intelligent systems alike can verify what's real, protect what matters, and move forward with confidence. we are focused on delivering a future where humans and intelligent systems alike can verify what's real protect what matters and move forward with confidence We are focused on filling the ever-expanding vacuum by positioning ourselves to deliver trust in every interaction spanning both the physical and digital worlds. we are focused on filling the ever-expanding vacuum by positioning ourselves to deliver trust in every interaction spanning both the physical and digital worlds We are building the trust layer for the modern world, a layer that is needed now more than ever and is forming a massive opportunity we were created to deliver. we are building the trust layer for the modern world a layer that is needed now more than ever and is forming a massive opportunity we were created to deliver I would like to conclude this call by once again thanking my amazing teammates. i would like to conclude this call by once again thanking my amazing teammates Reorganizing our business to increase our focus has been extremely challenging but absolutely necessary to achieve the results we know we must deliver: fast, profitable, and durable growth. I believe we are positioned to win and are on the precipice of scalable and repeatable in our commercial business. I'm excited to share our progress, especially in the quarters to come. Operator will now open the call for questions. Reorganizing our business to increase our focus has been extremely challenging but absolutely necessary to achieve the results we know we must deliver: fast, profitable, and durable growth. reorganizing our business to increase our focus has been extremely challenging but absolutely necessary to achieve the results we know we must deliver fast profitable and durable growth I believe we are positioned to win and are on the precipice of scalable and repeatable in our commercial business. i believe we are positioned to win and are on the precipice of scalable and repeatable in our commercial business I'm excited to share our progress, especially in the quarters to come. i'm excited to share our progress especially in the quarters to come Operator will now open the call for questions. operator will now open the call for questions

Speaker 3: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while the poll for questions. Our first question comes from Jeff Van Rhee with Craig-Hallum Capital Group. Please go ahead. Thank you. thank you Ladies and gentlemen, we will now be conducting a question and answer session. ladies and gentlemen we will now be conducting a question and answer session If you would like to ask a question, please press star and one on your telephone keypad. if you would like to ask a question please press star and one on your telephone keypad A confirmation tone will indicate your line is in the question queue. a confirmation tone will indicate your line is in the question queue You may press star and two if you would like to remove your question from the queue. you may press star and two if you would like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys Ladies and gentlemen, we will wait for a moment while the poll for questions. ladies and gentlemen we will wait for a moment while the poll for questions Our first question comes from Jeff Van Rhee with Craig-Hallum Capital Group . our first question comes from jeff van rhee with craig-hallum capital group Please go ahead. please go ahead

Speaker 6: Great, thanks. Thanks for taking the question. A couple for me on the, Charles, you mentioned the run rate expenses have come down. What was the, what is the GAAP OpEx run rate at the end of the quarter? Great, thanks. great thanks Thanks for taking the question. thanks for taking the question A couple for me on the, Charles, you mentioned the run rate expenses have come down. a couple for me on the charles you mentioned the run rate expenses have come down What was the, what is the GAAP OpEx run rate at the end of the quarter? what was the what is the gaap opex run rate at the end of the quarter

Speaker 1: On the non-GAAP operating expense run rate? On the non-GAAP operating expense run rate? on the non-gaap operating expense run rate

Speaker 6: Yeah, GAAP or non-GAAP at the end of Q2. You said it came down quite a bit. I'm just trying to figure out how far you are. Yeah, GAAP or non-GAAP at the end of Q2. yeah gaap or non-gaap at the end of q2 You said it came down quite a bit. you said it came down quite a bit I'm just trying to figure out how far you are. i'm just trying to figure out how far you are

Speaker 1: On non-GAAP or non-GAAP? Yeah, we were at $8.9 million of non-GAAP operating expenses for the quarter. We expect that that's going to continue to come down some as we start to realize the full benefit of all of our streamlining efforts. On non-GAAP or non-GAAP? on non-gaap or non-gaap Yeah, we were at $8.9 million of non-GAAP operating expenses for the quarter. yeah we were at $8.9 million of non-gaap operating expenses for the quarter We expect that that's going to continue to come down some as we start to realize the full benefit of all of our streamlining efforts. we expect that that's going to continue to come down some as we start to realize the full benefit of all of our streamlining efforts

Speaker 6: I guess what I was saying is, I know it was $8.9 million for the quarter. Based on the cuts you've made, how much lower than that $8.9 million quarterly rate is your run rate right now? I guess what I was saying is, I know it was $8.9 million for the quarter. i guess what i was saying is i know it was $8.9 million for the quarter Based on the cuts you've made, how much lower than that $8.9 million quarterly rate is your run rate right now? based on the cuts you've made how much lower than that $8.9 million quarterly rate is your run rate right now

Speaker 1: Yeah, I'm not going to give exact guidance, but there's still a significant amount of savings that we can generate in Q3 and Q4. Yeah, I'm not going to give exact guidance, but there's still a significant amount of savings that we can generate in Q3 and Q4. yeah i'm not going to give exact guidance but there's still a significant amount of savings that we can generate in q3 and q4

Speaker 4: Yeah, just. Yeah, just. yeah just That's just to be fair on that. There is more, even looking at our current monthly or weekly run rate, there's still more ahead of us from non-headcount savings. That's just to be fair on that. that's just to be fair on that There is more, even looking at our current monthly or weekly run rate, there's still more ahead of us from non-headcount savings. there is more even looking at our current monthly or weekly run rate there's still more ahead of us from non-headcount savings

Speaker 6: Got it. That's helpful. On the central bank business, do you have visibility into the forward year? This year, I think you had said expect down 10%, 15%, and that's kind of what we've seen. Do the, I don't know when you get an indication, just when do you get an idea of what next year looks like there? Got it. got it That's helpful. that's helpful On the central bank business, do you have visibility into the forward year? on the central bank business do you have visibility into the forward year This year, I think you had said expect down 10%, 15%, and that's kind of what we've seen. this year i think you had said expect down 10%, 15% and that's kind of what we've seen Do the, I don't know when you get an indication, just when do you get an idea of what next year looks like there? do the i don't know when you get an indication just when do you get an idea of what next year looks like there

Speaker 1: Yeah, Jeff, we do have usually a full year of visibility, but again, we wouldn't provide guidance unless we expect material changes in our business. We generally have at least 12-18 months of kind of forward-looking visibility because they commit to a sale basically a year in advance. We have fairly good visibility there. Yeah, Jeff, we do have usually a full year of visibility, but again, we wouldn't provide guidance unless we expect material changes in our business. yeah jeff we do have usually a full year of visibility but again we wouldn't provide guidance unless we expect material changes in our business We generally have at least 12-1 8 months of kind of forward-looking visibility because they commit to a sale basically a year in advance. we generally have at least 12-1 8 months of kind of forward-looking visibility because they commit to a sale basically a year in advance We have fairly good visibility there. we have fairly good visibility there

Speaker 6: Okay. I mean, historically, it had been kind of flattish. You can't share if it's kind of flattish or it continues this roughly 10% decline? Okay. okay I mean, historically, it had been kind of flattish. i mean historically it had been kind of flattish You can't share if it's kind of flattish or it continues this roughly 10% decline? you can't share if it's kind of flattish or it continues this roughly 10% decline

Speaker 1: If we expected a material difference, then that's something that we would disclose. If we expected a material difference, then that's something that we would disclose. if we expected a material difference then that's something that we would disclose

Speaker 6: The Europe customer that you mentioned. The Europe customer that you mentioned. the europe customer that you mentioned

Speaker 1: You could assume that means it's not going to be materially different from 2025. You could assume that means it's not going to be materially different from 2025. you could assume that means it's not going to be materially different from 2025

Speaker 6: Okay. The European customer that you mentioned in the quarter, nice ARR value to that. Was that signed in the quarter, and did that impact the reported ARR? Okay. okay The European customer that you mentioned in the quarter, nice ARR value to that. the european customer that you mentioned in the quarter nice arr value to that Was that signed in the quarter, and did that impact the reported ARR? was that signed in the quarter and did that impact the reported arr

Speaker 5: Yeah, it was at the close. Sorry to interrupt. Yeah, it was at the close. yeah it was at the close Sorry to interrupt. sorry to interrupt

Speaker 1: Yes, it was effective during Q2 and is included in ARR, although that contract, as Riley references, is expected to grow in multiple years. Only the first year is reflected in ARR at this point in time. There's some potential built-in basically upsell in future years under that contract. Yes, it was effective during Q2 and is included in ARR, although that contract, as Riley references, is expected to grow in multiple years. yes it was effective during q2 and is included in arr although that contract as riley references is expected to grow in multiple years Only the first year is reflected in ARR at this point in time. only the first year is reflected in arr at this point in time There's some potential built-in basically upsell in future years under that contract. there's some potential built-in basically upsell in future years under that contract

Speaker 6: Okay. All right. I'll leave it there. Thank you. Okay. okay All right. all right I'll leave it there. i'll leave it there Thank you. thank you

Speaker 1: Thanks, Jeff. Thanks, Jeff. thanks jeff

Speaker 3: Thank you. Ladies and gentlemen, a reminder to all the participants, if you would like to ask a question, please press star and one on your telephone keypad. Our next question comes from Jeff Bernstein with Silverberg Bernstein Capital. Please go ahead. Thank you. thank you Ladies and gentlemen, a reminder to all the participants, if you would like to ask a question, please press star and one on your telephone keypad. ladies and gentlemen a reminder to all the participants if you would like to ask a question please press star and one on your telephone keypad Our next question comes from Jeff Bernstein with Silverberg Bernstein Capital . our next question comes from jeff bernstein with silverberg bernstein capital Please go ahead. please go ahead

Speaker 2: Yeah, hi guys. Just on the gift card business, you cited a lot of different constituents and sort of supply chain touchpoints that you had to make to get the first cards in the market. Can you just give us a kind of a top-down on, you know, how many card vendors are there for you guys to work with? Do you have to retouch a lot of these points again for each one, or is a lot of that work done? It sounds like in terms of brands, you actually are touching several brands already that will go into the retailer that you talked about. Just flesh out the mechanics of all that. Yeah, hi guys. yeah hi guys Just on the gift card business, you cited a lot of different constituents and sort of supply chain touchpoints that you had to make to get the first cards in the market. just on the gift card business you cited a lot of different constituents and sort of supply chain touchpoints that you had to make to get the first cards in the market Can you just give us a kind of a top-down on, you know, how many card vendors are there for you guys to work with? can you just give us a kind of a top-down on you know how many card vendors are there for you guys to work with Do you have to retouch a lot of these points again for each one, or is a lot of that work done? do you have to retouch a lot of these points again for each one or is a lot of that work done It sounds like in terms of brands, you actually are touching several brands already that will go into the retailer that you talked about. it sounds like in terms of brands you actually are touching several brands already that will go into the retailer that you talked about Just flesh out the mechanics of all that. just flesh out the mechanics of all that

Speaker 5: I'm not sure I exactly understand the question, Jeff. Are you asking how many brands we're working with, how many retailers? I'm not sure I exactly understand the question, Jeff. i'm not sure i exactly understand the question jeff Are you asking how many brands we're working with, how many retailers? are you asking how many brands we're working with how many retailers

Speaker 2: No, I'm asking, yeah, it's what's important. Is it just the gift card companies? And if so, are there four and we just got to get three more? No, I'm asking, yeah, it's what's important. no i'm asking yeah it's what's important Is it just the gift card companies? is it just the gift card companies And if so, are there four and we just got to get three more? and if so are there four and we just got to get three more

Speaker 5: Got it. Got it. got it

Speaker 2: Do you have to retouch all scanners? Do you have to retouch brands? Do you have to retouch retailers? Does it all go through, you know, three gift card guys you have to win? Just give us the whole breakdown of how this all works. Do you have to retouch all scanners? do you have to retouch all scanners Do you have to retouch brands? do you have to retouch brands Do you have to retouch retailers? do you have to retouch retailers Does it all go through, you know, three gift card guys you have to win? does it all go through you know three gift card guys you have to win Just give us the whole breakdown of how this all works. just give us the whole breakdown of how this all works

Speaker 5: How much time you got? How much time you got? how much time you got I'll try to give you the high-level flyby, Jeff, to the right question. We are predominantly going to market through the gift card manufacturers, i.e., the printers. That is a relatively concentrated industry. There are, you know, tens globally, but a lot more concentrated. Think of the 80/20 rule. Those will, for the most part, be our customer. There are going to be one or two people we're going to go to market with directly. Going back to what I said, the team has done an incredible job when you're rolling out a revolutionary new technology, right? Think about the gift card industry. All of their, this is a massive existential problem that they are facing. They're critically, you know, they're hyper-focused on solving it. They're currently fighting it using analog technologies. That's what makes us so much different. We're better. We're cheaper. I'll try to give you the high-level flyby, Jeff, to the right question. i'll try to give you the high-level flyby jeff to the right question We are predominantly going to market through the gift card manufacturers, i.e., the printers. we are predominantly going to market through the gift card manufacturers i.e the printers That is a relatively concentrated industry. that is a relatively concentrated industry There are, you know, tens globally, but a lot more concentrated. there are you know tens globally but a lot more concentrated Think of the 80/20 rule. think of the 80/20 rule Those will, for the most part, be our customer. those will for the most part be our customer There are going to be one or two people we're going to go to market with directly. there are going to be one or two people we're going to go to market with directly Going back to what I said, the team has done an incredible job when you're rolling out a revolutionary new technology, right? going back to what i said the team has done an incredible job when you're rolling out a revolutionary new technology right Think about the gift card industry. think about the gift card industry All of their, this is a massive existential problem that they are facing. all of their this is a massive existential problem that they are facing They're critically, you know, they're hyper-focused on solving it. they're critically you know they're hyper-focused on solving it They're currently fighting it using analog technologies. they're currently fighting it using analog technologies That's what makes us so much different. that's what makes us so much different We're better. we're better We're cheaper. we're cheaper We're also, for the first time, a technology solution, which means we're better today, and we're going to have a roadmap for the next 20 years as long as we continue to join this industry to fight this massive, massive fraud. When you're rolling out a revolutionary new technology and also trying to not disrupt existing workflow, that's a really tall task. I think the team did a really good job and planted a go-to-market strategy, which is why we're going to market through these gift card manufacturers or printers. That's number one. The gift card printers work with all of the brands. I mean, that's obviously how the brands get their markets, their cards created. They're going to be discussing our new solution with their customers. Also key in this whole industry is something called the gift card networks. We're also, for the first time, a technology solution, which means we're better today, and we're going to have a roadmap for the next 20 years as long as we continue to join this industry to fight this massive, massive fraud. we're also for the first time a technology solution which means we're better today and we're going to have a roadmap for the next 20 years as long as we continue to join this industry to fight this massive massive fraud When you're rolling out a revolutionary new technology and also trying to not disrupt existing workflow, that's a really tall task. when you're rolling out a revolutionary new technology and also trying to not disrupt existing workflow that's a really tall task I think the team did a really good job and planted a go-to-market strategy, which is why we're going to market through these gift card manufacturers or printers. i think the team did a really good job and planted a go-to-market strategy which is why we're going to market through these gift card manufacturers or printers That's number one. that's number one The gift card printers work with all of the brands. the gift card printers work with all of the brands I mean, that's obviously how the brands get their markets, their cards created. i mean that's obviously how the brands get their markets their cards created They're going to be discussing our new solution with their customers. they're going to be discussing our new solution with their customers Also key in this whole industry is something called the gift card networks. also key in this whole industry is something called the gift card networks These are like Blackhawk and InComm are the two dominant ones. They touch all of the brands. They're also having conversations with the brands about new security solutions. They also talk to all the retailers. When you walk into a retailer store and you see called Gift Card Mall, but like a rack full of gift cards, that's either probably InComm or Blackhawk's mall. They're a key part of both the brands as well as the retailers. Finally, you're right, we absolutely do need our software running at the front of store of these retailers. This is something that, you know, we've had our presence, our footprint in most of the major scanners for years now. There is an upgrade to our software. That's part of our solution. We're not just solving, we're not just applying technology to the gift cards, we're applying it to the detection. These are like Blackhawk and InComm are the two dominant ones. these are like blackhawk and incomm are the two dominant ones They touch all of the brands. they touch all of the brands They're also having conversations with the brands about new security solutions. they're also having conversations with the brands about new security solutions They also talk to all the retailers. they also talk to all the retailers When you walk into a retailer store and you see called Gift Card Mall, but like a rack full of gift cards, that's either probably InComm or Blackhawk 's mall. when you walk into a retailer store and you see called gift card mall but like a rack full of gift cards that's either probably incomm or blackhawk 's mall They're a key part of both the brands as well as the retailers. they're a key part of both the brands as well as the retailers Finally, you're right, we absolutely do need our software running at the front of store of these retailers. finally you're right we absolutely do need our software running at the front of store of these retailers This is something that, you know, we've had our presence, our footprint in most of the major scanners for years now. this is something that you know we've had our presence our footprint in most of the major scanners for years now There is an upgrade to our software. there is an upgrade to our software That's part of our solution. that's part of our solution We're not just solving, we're not just applying technology to the gift cards, we're applying it to the detection. we're not just solving we're not just applying technology to the gift cards we're applying it to the detection It becomes really, really scalable because we are a known entity that's been running in a lot of these scanners. Whether or not it's turned on, there's obviously massive retailers where it is turned on. It's just a matter of getting that firmware pushed. These big retailers, some of them update their firmware a lot, and just a regular cadence, let alone for a reason like this. This is a massive problem estimated just in the U.S. alone, north of $4 billion. The loss to the retailers is multiples of that. That's pretty much it, Jeff. I don't know if that was a. It becomes really, really scalable because we are a known entity that's been running in a lot of these scanners. it becomes really really scalable because we are a known entity that's been running in a lot of these scanners Whether or not it's turned on, there's obviously massive retailers where it is turned on. whether or not it's turned on there's obviously massive retailers where it is turned on It's just a matter of getting that firmware pushed. it's just a matter of getting that firmware pushed These big retailers, some of them update their firmware a lot, and just a regular cadence, let alone for a reason like this. these big retailers some of them update their firmware a lot and just a regular cadence let alone for a reason like this This is a massive problem estimated just in the U.S. alone, north of $4 billion. this is a massive problem estimated just in the u.s alone north of $4 billion The loss to the retailers is multiples of that. the loss to the retailers is multiples of that That's pretty much it, Jeff. that's pretty much it jeff I don't know if that was a. i don't know if that was a

Speaker 2: No, that's great. That's what I was looking for. That's fine. We can do more offline, but that was generally what I was. No, that's great. no that's great That's what I was looking for. that's what i was looking for That's fine. that's fine We can do more offline, but that was generally what I was. we can do more offline but that was generally what i was

Speaker 4: I'm sure we will. I'm sure we will. i'm sure we will Thanks, Jeff. Thanks, Jeff. thanks jeff

Speaker 3: Thank you. Ladies and gentlemen, at this time, there are no further questions. The conference of Digimarc Corporation has now concluded. Thank you for your participation. You may now disconnect your lines. Thank you. Thank you. thank you Ladies and gentlemen, at this time, there are no further questions. ladies and gentlemen at this time there are no further questions The conference of Digimarc Corporation has now concluded. the conference of digimarc corporation has now concluded Thank you for your participation. thank you for your participation You may now disconnect your lines. you may now disconnect your lines Thank you. thank you