Digimarc (NASDAQ:DMRC) executives used the company’s fourth-quarter earnings call to highlight progress on its Secure Gift Card initiative, continued growth in product authentication, and expanding traction in digital trust and integrity solutions, while also reviewing a quarter that delivered positive non-GAAP profitability and positive free cash flow.
Secure Gift Card adoption: first commercial order and retailer rollout planning
CEO Riley McCormack said the company made “significant progress” advancing adoption of its Secure Gift Card solution, which it views as its greatest near-term opportunity within retail loss prevention. Digimarc signed its first commercial order, which management described as a critical milestone. The company is also “laying the rails for future orders” by advancing initial rollout plans with eight North American retailers, including four of the largest.
The company disclosed specific rollout expectations: Digimarc said it expects all Schnucks locations to be carrying Digimarc-secured gift cards in the spring and approximately 600 stores of a major U.S. retailer to carry them in the summer, with plans to expand for holiday 2026. Digimarc also said it is in various stages of planning with six additional retailers, including three of the largest in North America.
McCormack and CFO Charles Beck both addressed a key dependency: point-of-sale scanner firmware support. Beck said a longstanding timing risk has been scanner vendors shipping generally available firmware incorporating Digimarc’s latest software, a prerequisite for retailer in-store firmware refreshes. McCormack said the three major scanner vendors have publicly committed to timelines, and Digimarc believes it is a “matter of weeks” until the most relevant scanner models have generally available firmware incorporating the latest software.
Digimarc also discussed its go-to-market model for gift cards, saying it plans to monetize the gift card side of the network while providing scanner detection software for free. The company posted a “gift card investor supplemental” on its investor relations website and shared market sizing estimates for the serviceable addressable market.
Product authentication: upsells, new applications, and expanding form factors
In product authentication, McCormack said annual recurring revenue (ARR) from Digimarc’s anti-counterfeiting solution continues to grow, driven by upsells and new wins. He described counterfeiting as worsening, including due to AI making it easier to replicate packaging and security features. Digimarc positioned its offering as a covert and connected approach that it said performs better than analog solutions such as tags, codes, inks, or labels.
During the quarter, Digimarc said it:
- Closed multiple upsell deals with existing anti-counterfeiting customers, including expansion to new geographies and brands.
- Secured an upsell to extend the solution to authenticate tax stamps, described as a new application.
- Signed an upsell with one of the world’s leading pharmaceutical companies to expand across more products globally.
McCormack also noted the company expects to enter print trials to apply its technology to cigarette tipping paper, bringing authentication “down to the stick level,” where he said a large share of counterfeiting occurs. He cited an estimated 5 trillion cigarettes sold each year as a sizable unit opportunity, contingent on meeting market needs.
Digital trust and integrity: leak detection focus and new customer logos
Digimarc said it exceeded its conservative 2025 ARR assumptions in digital trust and integrity and expects to accelerate traction in 2026. McCormack argued that AI is increasing the need for verifiable trust and scalable authenticity, and he highlighted Digimarc’s role in digital watermarking, including its “first to market with and co-leadership” of the watermarking component of the C2PA standard.
McCormack provided added detail on Digimarc’s Leak Detection for Web Content solution, which he said addresses a gap in data loss prevention involving image-based leaks—such as employees or contractors taking phone photos of screens displaying sensitive information. He said the solution adds a covert security layer to on-screen content and allows customers to upload discovered images to Digimarc’s Illuminate platform to identify the source of a leak.
Digimarc also reported signing two new digital customer logos in the quarter: a global consumer goods company and an AI-powered content generation company. Management said the AI-focused customer is interested in attribution, auditability, and responsible commercialization of user-generated content amid increased scrutiny of generative AI.
Q4 financial results: ARR decline tied to contract losses, while cash flow improved
Beck reported ending ARR of $13.7 million, down from $20.0 million a year earlier. He attributed the decline to the loss of two large customer contracts outside the company’s focus areas: a $3.5 million DRS contract that ended in the second quarter and a $3.1 million retailer contract that lapsed in the fourth quarter. Excluding those two items, Beck said ARR grew $400,000 year-over-year, though that growth was “muted” by higher churn and price aggressiveness outside focus areas.
Total revenue for the quarter was $8.9 million, up from $8.7 million in the prior-year quarter. Subscription revenue increased 6% to $5.3 million and represented 60% of total revenue. Beck said subscription revenue included $1.4 million of license fees from two IP licensing deals signed during the quarter, while noting that IP licensing revenue can be lumpy and is not included in ARR. Beck said Digimarc has generated well over $100 million of IP licensing revenue over its history and highlighted the Q4 deals because they were with two technology market leaders and demonstrated the value of the company’s intellectual property.
Margins and costs moved favorably in several areas. Subscription gross margin was 90%, up five points year over year, driven largely by lower platform costs. Beck said platform costs are now $200,000 lower per quarter than at the beginning of 2025, with additional reductions expected in 2026. Operating expenses were $10.0 million, down 31% from $14.4 million, though Beck noted $500,000 of costs tied to the IP licensing deals. Non-GAAP operating expenses were $6.5 million, down 45% from $11.9 million.
The company posted a net loss per diluted share of $0.19, compared with $0.40 a year ago. On a non-GAAP basis, Digimarc reported net income per diluted share of $0.05, compared with a non-GAAP net loss of $0.22 a year earlier.
Beck said Digimarc ended the quarter with $12.9 million in cash and short-term investments and no debt. Free cash flow was positive $700,000 versus negative $4.4 million in the prior-year quarter, an improvement of $5.1 million. Management guided to a free cash flow loss of $1 million to $2 million in the first quarter, citing headcount investments to accelerate growth, annual public company compliance costs, and approximately $1 million of one-time tax and legal costs related to implementing a new corporate structure.
2026 priorities and a canceled Q&A
Looking ahead, Beck said the company expects significant ARR growth in 2026, with the largest single driver anticipated to be Secure Gift Card. He said the company’s goal is to move targeted retailers and brands toward meaningful adoption for holiday 2026, with expected orders in summer and early fall, and further ramp tied to the spring 2027 refresh cycle.
Management said it intends to be transparent about the portion of ARR generated from gift card orders as penetration increases. Beck also cautioned that, at least initially, gift card deals may have shorter durations than Digimarc’s typical annual contract terms, which he said could understate run-rate demand given the market’s recurring order patterns.
The call ended without a question-and-answer session due to what management described as a technical issue with the conference call service. Executives directed investors to reach out to them directly.
About Digimarc (NASDAQ:DMRC)
Digimarc Corporation is a technology company specializing in digital identification and authentication solutions. Its core offering centers on embedding imperceptible digital watermarks into images, audio, video and packaging materials. These watermarks carry unique identifiers that enable secure tracking, brand protection and content provenance across print and digital channels.
The company’s product suite includes software development kits and cloud-based services that allow enterprises to integrate digital watermarking into their existing workflows.
