Digimarc Corporation (NASDAQ:DMRC) Q3 2020 Earnings Conference Call - Final Transcript

Oct 28, 2020 • 05:00 pm ET

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Digimarc Corporation (NASDAQ:DMRC) Q3 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good afternoon and thank you for participating in today's conference call. Now I will turn the call over to Chairman and CEO of Digimarc, Mr. Bruce Davis. Sir, please proceed.

Executive
Bruce Davis

Thank you, and good afternoon. Welcome to our conference call. Charles Beck, our CFO, is with me. We also have Bob Chamness, our EVP, in charge of sustainability, joining us today to provide an update on progress and prospects in this increasingly important use of our platform in plastics recycling. On the call today, we'll review Q3 financial results, discuss significant business developments and market conditions and provide an update on progress and execution of strategy. We have posted these prepared remarks in the Investor Relations section of our website and will archive this webcast there. Before we begin, let me remind everyone that today's discussion contains forward-looking statements and risks and uncertainties. Please refer to our press release for more information on the risk factors that could cause actual results to differ materially.

Charles?

Executive
Charles Beck

Thank you, Bruce, and good afternoon, everyone. Revenue for the third quarter was $5.8 million, essentially flat with Q3 last year. Service revenue increased 6% from $3.2 million to $3.4 million due to growth in services provided to government customers. Subscription revenue decreased 10% from $2.7 million to $2.4 million due to the impact of the renegotiated contract with a retail supplier partner in the first quarter of 2020 that we've discussed on prior calls. Revenue from government was up 4% to $3.5 million driven by growth in service revenue. Revenue from retail was down 15% to $1.4 million, reflecting the impact of the renegotiated contract I referenced a moment ago. Revenue from media was unchanged at $900,000. Retail bookings, which include store operations, supply chain and recycling solutions, were $1.2 million, around the same level as Q3 last year. The most significant factor affecting bookings growth during the quarter was the pandemic effect on the organization of HolyGrail 2.0 and planning for the Golden Thread projects. We signed some new revenue deals in Q3 that did not contribute significantly to bookings as they were primarily early production and pilot projects. However, we do expect these initial activities will grow into larger revenue streams in coming quarters. Bookings during Q3 included several notable strategic developments. We started enhancement of private label packages with Digimarc Barcode for a major retailer in Japan. To date, we have completed more than 70 packages. We expect to transition the enhancement process to a trusted partner in Japan during Q4. We also began a customer-funded study of the commercial viability of laser-engraving serialization with a global brand and its suppliers. We generated follow-on bookings for the variable data printing solution that I mentioned on our Q2 earnings call. And we completed the Walmart Toy Catalog, which began circulating about a week ago.

Gross margin for the quarter was 66%, down from 67% last year due to a shift in revenue mix to services. Service margins were 58%, up from 55% last