Digimarc (DMRC) Q4 2011 earnings summary

Executive summary

• FY2011 revenue grew 16% YoY to $36.0M; net income was $5.7M, supported by higher IV and Verance licensing revenue and a $2.6M deferred-tax valuation allowance release.

• Licensing and subscription revenue rose to $23.6M, lifting gross margin to 81%; higher R&D and legal costs, including Verance litigation expenses, tempered operating leverage.

Financial highlights

• Revenue was $36.0M, up 16% YoY; service revenue was $12.4M and license and subscription revenue was $23.6M.

• Gross profit increased 19% to $29.1M; gross margin was 81%, versus 78% in 2010, reflecting greater contribution from high-margin licensing.

• Operating income was $6.4M versus $6.2M; net income was $5.7M versus $4.2M, and diluted EPS was $0.76 versus $0.55.

• Q4 revenue was $8.9M, gross margin 79%, operating income $1.2M, net income $0.5M and diluted EPS $0.06.

• Operating cash flow was $10.2M; cash, cash equivalents and all marketable securities totaled $33.4M at year-end, down from $45.9M.

Outlook and guidance

• Revenue growth is anticipated in 2012 from existing customers, including Verance settlement-related payments, and new customers as IP portfolio marketing and monetization expand.

• Backlog contracts at year-end were expected to generate at least $44M through early 2015, with approximately $28M expected to be recognized as revenue during 2012; backlog may be modified or canceled.

• Current cash, cash equivalents and short-term marketable securities were expected to cover working capital and capital expenditure needs for at least 12 months.

• R&D investment was expected to remain at higher levels; sales and marketing spending was expected near existing levels, with lower near-term G&A costs anticipated following the Verance settlement.