Q2 2024 Digimarc Corp Earnings Call

Speaker Change: Voices starting and ending Lively, Different

in a lively, indifferent?

Speaker Change: [inaudible]

Operator: Greetings and welcome to the Digimarc Corporation's second quarter 2024 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Operator: You know, lively, and different. Greetings, and welcome to the Digimarc Corporation's second quarter 2024 Financial Results Conference. At this time, all participants are on a listen-only basis. The question-and-answer session will follow the formal presentation. If anyone should require operators, just press star zero on your telephone keypad.

Speaker Change: [inaudible]

Speaker Change: Greetings and welcome to the Digimart Corporation's second quarter 2024 financial results conference call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Karamanos. Thank you. You may begin.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, George Karamanos. Thank you.

George Karamanos: It is now my pleasure to introduce your host, George Karamanos.

George Karamanos: Thank you. You may begin.

Riley McCormack: 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 financial results.

George Karamanos: I welcome everyone to our Q2 conference call. Riley McCormack, our CEO, and Charles Beck, our CFO, are with me on the call today. On the call today, we will provide a business update and discuss Q2 financial results, which will be followed by a question and answer session.

George Karamanos: Welcome everyone to our Q2 conference call. Riley McCormack, our CEO, and Charles Beck, our CFO, are with me on the call.

Riley McCormack: This will be followed by a question and answer form. We have posted our prepared remarks and our quarterly earnings snapshot in the investor-relations section of our website and will archive this webcast there.

Speaker Change: On the call today, we will provide a business update and discuss Q2 financial results.

Speaker Change: This will be followed by a question and answer forum. We have posted our prepared remarks and our quarterly earnings snapshot in the investor relations section of our website, and we'll archive this webcast there.

George Karamanos: We've posted our prepared remarks and our quarterly earnings snapshot in the investor relations section of our website, and we'll archive this webcast. Before we begin, let me remind everyone that today's discussion contains forward-looking statements that involve 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 bit of background. Thank you, George, and hello, everyone.

Riley McCormack: Before we begin, let me remind everyone that today's discussion contains four looking statements that have risks and uncertainty. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

Speaker Change: 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.

Riley McCormack: Riley will now provide a business update.

Riley McCormack: Thank you, George, and hello, everyone. I want to begin this call by reiterating the core trends of our strategy. When we get to the subsequent discussion of Q2, I encourage you to examine our progress with these core trends in mind. Doing so will help frame the accomplishments we achieve in the quarter, and more importantly, provide context as to where we're going from here. As our world becomes increasingly digital and companies progress through digital transformation journeys, digital marks maximize the ways in which products and multi-media could digitally interact with the various systems that surround them. We excel at the identification and authentication of physical goods that digital assets, often at massive scale, and often where other means of identification or authentication don't work well or don't work at all.

Riley McCormack: I want to begin this call by reiterating the core tenets of our strategy. When we get to the subsequent discussion of Q2, I encourage you to examine our progress with these core tenets in mind. Doing so will help frame the accomplishments we achieved in the quarter and, more importantly, provide context as to where we're going from here. As our world becomes increasingly digital and companies progress their digital transformation journeys, Digimarc maximizes the ways in which products and multimedia can digitally interact with the various systems that surround them.

Riley McCormack: Thank you George and hello everyone. I want to begin this call by reiterating the core tenets of our strategy. When we get to the subsequent discussion of Q2, I encourage you to examine our progress with these core tenets in mind.

Riley McCormack: Doing so will help frame the accomplishments we achieved in the quarter, and more importantly, provide context as to where we're going from here.

Riley McCormack: As our world becomes increasingly digital and companies progress their digital transformation journeys, DigiMark maximizes the ways in which products and multimedia can digitally interact with the various systems that surround them.

Riley McCormack: We excel at the identification and authentication of physical goods and digital assets, often at massive scale and often where other means of identification or authentication don't work well or don't work at all. Our focus is on converting this large total addressable market into substantial free cash flow by positioning ourselves to deliver high and long-lasting top-line growth at world-class operating margins. This starts with us being easy to begin doing business with and excellent in guiding customers along their Digimarc journey and is aided by four key tailwinds we have been very intentional about creating.

Riley McCormack: We excel at the identification and authentication of physical goods and digital assets, often at massive scale, and often where other means of identification or authentication don't work well or don't work at all.

Riley McCormack: Our focus is on converting this large total addressable market as a substantial free cash flow, that positioning ourselves to deliver high and long lasting top-line growth at world-class operating margins. This starts with our being easy to begin dealing business with and excellent guiding customers along their digital market journey and is aided by four key tailwinds we have been very intentional to create. One, our incredibly deep and wide notes allow us to offer differentiated products. In turn, our differentiated products enable us to create new markets and disrupt existing ones. Two, the need to identify and authenticate physical goods that digital assets is universal, meaning almost every entity in the world is a potential digital market customer.

Riley McCormack: Our focus is on converting this large total addressable market into substantial free cash flow by positioning ourselves to deliver high and long-lasting top-line growth at world-class operating margins.

Art: This starts with Art being easy to begin doing business with and excellent in guiding customers along their Digimart journey and is aided by four key tailwinds we have been very intentional to create.

Riley McCormack: One, our incredibly deep and wide moats allow us to offer differentiated products. In turn, our differentiated products enable us to create new markets and disrupt existing ones. Two, the need to identify and authenticate physical goods and digital assets is universal, meaning almost every entity in the world is a potential Digimarc customer. Additionally, because our technology enables us to identify and authenticate things when other solutions don't work well or don't work at all, our ecosystem consists of companies incentivized to partner with us rather than pose a competitive risk. 3.

Art: 1. Our incredibly deep and wide moats allow us to offer differentiated products. In turn, our differentiated products enable us to create new markets and disrupt existing ones.

Art: Two, the need to identify and authenticate physical goods and digital assets is universal, meaning almost every entity in the world is a potential DigiMark customer.

Riley McCormack: Additionally, because our technology enables us to identify and authenticate things, or other solutions don't work well or don't work at all, our ecosystem consists of companies that incentivize to partner with us rather than posing a competitive risk. Three, there are many use cases that require companies to identify or authenticate their physical items of digital assets, and there are many ways we can configure our technology to achieve these goals. Therefore, our ability to productize new functionalities is open-ended. This means our already large channel will continue to grow as many of our launch new products for an opportunity unlocking functionality due to existing ones.

Art: Additionally, because our technology enables us to identify and authenticate things or other solutions don't work well or don't work at all, our ecosystem consists of companies incentivized to partner with us rather than posing a competitive risk.

Riley McCormack: There are many use cases that require companies to identify or authenticate their physical items and digital assets, and there are many ways we can configure our technology to achieve these goals. Therefore, our ability to productize new functionality is open-ended. This means our already large TAM will continue to grow as we either launch new products or add opportunity-unlocking functionality to existing ones. Finally, we engineer our products to be accretive, meaning the more Digimarc products a customer buys, the more value each product delivers.

Art: Three, there are many use cases that require companies to identify or authenticate their physical items and digital assets, and there are many ways we can configure our technology to achieve these goals.

Art: Therefore, our ability to productize new functionality is open-ended. This means our already large TAM will continue to grow as we either launch new products or add opportunity-unlocking functionality to existing ones.

Riley McCormack: Four, we engineer our products to be accretive, meaning the more product, the more products of customer buys, the more value each product delivers.

Art: Four, we engineer our products to be accretive, meaning the more DigiMark products a customer buys, the more value each product delivers.

Riley McCormack: This positions us to harvest a low-hanging and highly profitable fruit of cross-cells and upsells for years to come. Turning now to Q2, we make significant progress on multiple fronts highlighted by three developments, like the other profound impact on the second half of this year and the end. Before providing these important updates, I want to reiterate two points. First, because we are early in the journey to our ultimate and massive scale, our net annual current revenue growth can be lengthy when looked at on a quarterly basis. As a reminder, quarterly net AR growth is the output of gross addition to ARR minus churn.

Riley McCormack: This positions us to harvest the low-hanging and highly profitable fruit of cross-sells and up-sells for years to come. Turning now to Q2, we made significant progress on multiple fronts, highlighted by three developments likely to have a profound impact on the second half of this year and beyond. Before providing these important updates, I want to reiterate two points. First, because we are early in the journey to our ultimate and massive scale, our net annual recurring revenue growth can be lumpy when looked at on a quarterly basis. As a reminder, quarterly net AR grub is the output of gross addition to ARR minus churn. In Q2, churn almost entirely offset our gross add.

Art: This positions us to harvest a low-hanging and highly profitable fruit of crop sales and upsells for years to come.

Art: Turning now to Q2, we made significant progress on multiple fronts, highlighted by three developments likely to have a profound impact on the second half of this year and beyond.

Art: Before providing these important updates, I want to reiterate two points.

Art: First, because we are early in the journey to our ultimate and massive scale, our net annual recurring revenue growth can be lumpy when looked at on a quarterly basis.

Art: As a reminder, quarterly net AR growth is the output of gross addition to ARR minus churn. In Q2, churn almost entirely offset our gross add.

Riley McCormack: In Q2, churn almost entirely offset our gross ad. A significant driver of this dynamic was a transition to our preferred partner engagement model to our new center of expertise program. While this transition results in less upfront ARR, it leads to two significant benefits that you pay off for years: greater ARR upside over time and more focused, repeatable, scalable, and profitable growth. Two things to note on this transition and this impact in our quarterly net ARR results both in Q2 and beyond. First, even with the headwind of lower upfront ARR, we slightly exceeded the Q2 gross ad target set in our 2024 budget.

Riley McCormack: A significant driver of this dynamic was the transition from our preferred Partner Engagement Model to our new Center of Expertise program. While this transition results in less upfront ARR, it leads to two significant benefits that should pay off per year, greater recurring revenue upside over time, and more focused, repeatable, scalable, and profitable growth. Two things to note about this transition and its impact on our quarterly NetAR results, both in Q2 and beyond.

Art: A significant driver of this dynamic was the transition of our preferred partner engagement model to our new center of expertise program.

Art: While this transition results in less upfront ARR, it leads to two significant benefits that should pay off for years.

Art: greater AR upside over time, and more focused, repeatable, scalable, and profitable growth.

Art: Two things to note on this transition and its impact in our quarterly NetAR results, both in Q2 and beyond.

Riley McCormack: First, even with the headwind of lower upfront ARR, we slightly exceeded the Q2 gross ad target set in our 2024 budget. Second, as of the end of Q2, the partners that remain in our historic partner program are not candidates to transition to our COE program.

Art: First, even with the headwind of lower upfront ARR, we slightly exceeded the Q2 gross ad target set in our 2024 budget.

Riley McCormack: Second, as at the end of Q2, the partners that remain in our historic partner program are not candidates to transition to our COE program. On our February fall, we discuss the reasons why we believe so strongly in the COE program, and in the June press release, we announce the program's funding numbers.

Art: Second, as of the end of Q2, the partners that remain in our historic partner program are not candidates to transition to our COE program.

Riley McCormack: On our February call, we discussed the reasons why we believe so strongly in the COE program, and in the June press release, we announced the program's founding members. Over the past few months, we've become even more convinced of the power of this new program, and beyond the positive impact it is already having on our sales pipeline, I am thrilled to announce we closed our first COE source contract during the quarter, a multi-year Digimarc Validate deal. Check it out, and it's evidenced by our historic results.

Speaker Change: On our February call, we discussed the reasons why we believe so strongly in the COE program, and in the June press release, we announced the program's founding members.

Riley McCormack: Over the past few months, we've become even more convinced of the power of this new program, and beyond the positive impact that it's already having in our sales pipeline, I am thrilled to announce we closed our first COE source contract during the quarter, a multi-year digital market value deal. Second, and as evidenced by our historic results, while this emptiness will lead to quarters like Q2, where our quarterly net ARR growth is below trend. There will also lead to quarters where quarterly growth is significantly above trend. When we say we expect our business to be want to be until we reach a larger scale, we use that term as it is truly intended, not as the euphemism for week.

Speaker Change: Over the past few months, we've become even more convinced of the power of this new program, and beyond the positive impact it is already having on our sales pipeline, I am thrilled to announce we closed our first COE source contract during the quarter, a multi-year DigiMark Validate deal.

Riley McCormack: While this lumpiness will lead to quarters like Q2, where quarterly net AR growth is below trend, it will also lead to quarters where quarterly growth is significantly above trend. When we say we expect our business to be lumpy until we reach a larger scale, we use that term as it is truly intended, not as an euphemism for weak. This is why we prefer to measure our ARR over one-year and three-year time horizons, as we do in the quarterly earnings snapshot George referenced in his opening remarks.

Speaker Change: Check it, and it's evidenced by our historic results. While this lumpiness will lead to quarters like Q2 where quarterly net AR growth is below trend, it will also lead to quarters where quarterly growth is significantly above trend.

Speaker Change: When we say we expect our business to be lumpy until we reach a larger scale, we use that term as it is truly intended, not as a euphemism for weak. This is why we prefer to measure our ARR over one-year and three-year time horizons, as we do in the quarterly earnings snapshot George referenced in his opening remarks.

Riley McCormack: This is why we prefer to measure our ARR over one-year and three-year time horizons, as we do with the quarterly earnings snapshot George referenced in his opening remarks. Focusing on the forest, not the trees, provides a better measure of this business is of our business is true growth. Moreover, our focus extends beyond any single quarter, and, as I mentioned at the beginning of this call, is centered on converting our large total addressable markets into substantial free cash flow.

Riley McCormack: Focusing on the forest, not the trees, provides a better measure of our business's true growth. Moreover, our focus extends beyond any single quarter, and as I mentioned at the beginning of this call, it's centered on converting our large total addressable markets into substantial free cash flows. To that end, I want to use the rest of this call to update you on key developments in two of our ecosystem-driven opportunities and preview a new market opportunity that presents a TAM as large as, if not larger than, any other opportunity we are pursuing. As a reminder, we view our business as having three pillars of shareholder value. The first pillar is our longstanding relationship with the world's central bank.

George Karamanos: Focusing on the forest, not the trees, provides a better measure of our business's true growth.

George Karamanos: Moreover, our focus extends beyond any single quarter, and as I mentioned at the beginning of this call, is centered on converting our large total addressable markets into substantial free cash flow.

Riley McCormack: To that end, I want to use the rest of this call to update you on key developments in two of our ecosystem-driven opportunities and preview a new market opportunity that presents a can as large as, if not larger than, any other opportunity we are pursuing. As a reminder, review our business is having three pillars of shareholder value. The first color is our longstanding relationship with the world's central banks. Beyond the meaningful cash flow, this 26-year relationship provides, our work with central banks also acts as a source of intellectual property generation for our commercial business, gives us invaluable credibility as a trustworthy supplier, and demonstrates our ability to scale.

Speaker Change: To that end, I want to use the rest of this call to update you on key developments in two of our ecosystem-driven opportunities and preview a new market opportunity that presents the TAM as large as, if not larger than, any other opportunity we are pursuing.

Riley McCormack: Beyond the meaningful cash flow this 26-year relationship provides, our work with the central banks also acts as a source of intellectual property generation for our commercial business, gives us invaluable credibility as a trustworthy supplier, and demonstrates our ability to scale. The second pillar consists of our SaaS and PaaS products that follow a more traditional software go-to-market model in areas such as deal size, sales cycle, and lack of ecosystem dependency. I touched briefly on the progress in our COE program earlier. For additional important updates from Q2 related to this pillar, I again encourage everyone to review our quarterly earnings snapshot. The third pillar consists of our ecosystem-driven opportunities.

Speaker Change: As a reminder, we view our business as having three pillars of shareholder value.

Speaker Change: The first pillar is our long-standing relationship with the world's central banks.

Speaker Change: Beyond the meaningful cash flow this 26-year relationship provides, our work with the Central Banks also acts as a source of intellectual property generation for our commercial business, gives us invaluable credibility as a trustworthy supplier, and demonstrates our ability to scale.

Riley McCormack: The second color comprises of our saps and past products have followed a more traditional software-go-to-market model in areas such as deal size, sale cycle, and lock-up ecosystem dependencies. of the United States. I touched briefly on the progress in our COE program earlier. For additional important updates from Q2 related to this pillar, I again encourage everyone to review our quarterly earnings snapshot. The third color consists of our ecosystem-driven opportunities. These opportunities encompass industry-wide or country-wide initiatives that, once in motion, have powerful flywheels that you drive quick, broad, and sticky adoption, but also have ecosystem dependencies that make timing unpredictable as it is predominantly outside of our direct control.

Speaker Change: The second pillar comprises of our SaaS and PaaS products that follow a more traditional software go-to-market model in areas such as deal size, sales cycle, and lack of ecosystem dependencies.

Speaker Change: I touched briefly on the progress in our COE program earlier. For additional important updates from Q2 related to this pillar, I again encourage everyone to review our quarterly earnings snapshot.

Riley McCormack: These opportunities encompass industry-wide or country-wide initiatives that, once in motion, have powerful flywheels that should drive quick, broad, and sticky adoption, but also have ecosystem dependencies that make timing unpredictable, as it is predominantly outside of our direct control. Before I provide an update on our progress in two of these opportunities, namely Digimarc Retail Experience and Digimarc Recycle, I again want to point everyone to our quarterly earnings snapshot for an update on our third ecosystem-driven opportunity, Digimarc Validate Media, which we continue to believe can deliver the safer, fairer, and more authentic Internet we all deserve.

Speaker Change: The third pillar consists of our ecosystem-driven opportunities.

Speaker Change: These opportunities encompass industry-wide or country-wide initiatives that, once in motion, have powerful flywheels that should drive quick, broad, and sticky adoption, but also have ecosystem dependencies that make timing unpredictable, as it is predominantly outside of our direct control.

Riley McCormack: Before I provide an update on our progress in these two of these opportunities, namely Digimarc Retail Experience and Digimarc Recycle, I again want to point everyone to our quarterly earnings snapshot for an update on our third ecosystem driven opportunity, Digimarc Validate Media, which we continue to believe can deliver the safer, fairer, and more authentic Internet we all deserve. Turning to the update on Digimarc Retail Experience, recall this offering is a Razer-Razer Blade product. The Razer involves licensing our Digimarc Illuminate Classroom to retailers, the user's capabilities to build out the points of detection required to enable next-generation install operations.

Speaker Change: Before I provide an update on our progress in these two

Speaker Change: in 2 of these opportunities, namely DigiMark Retail Experience and DigiMark Recycle. I again want to point everyone to our quarterly earning snapshot for an update on our 3rd ecosystem driven opportunity, DigiMark Validate Media which we continue to believe can deliver the safer, fairer, and more authentic Internet we all deserve.

Riley McCormack: Turning to the update on the Digimarc retail experience, recall this offering is a razor and razor blade product. The RAZR involves licensing our Digimarc Illuminate platform to retailers who use its capabilities to build out the points of detection required to enable next-generation in-store operations. The Razor Blades are provided by our licensing Digimarc retail experience to the brands whose products are carried by that retailer, including the retailer's private label brands, allowing their products to interact with these points of detection.

Speaker Change: Turning to the update on DigiMark Retail Experience, recall this offering as a Razer Razer Blade product. The Razer involves licensing our DigiMark Illuminate platform to retailers who use its capabilities to build out the points of detection required to enable next-generation in-store operations.

Riley McCormack: The Razer blades are provided by our licensing Digimarc Retail Experience to the brands whose products are carried by that retailer, including the retailer's private label Brilliance, allowing their products to interact with these points of detection. As stated on a prior call, we believe the can of licensing our platform to enable next-generation install operations is well into the nine figures of ARR. We believe the can of Digimarc Retail Experience is multiple larger still. But beyond these incredibly large cans, Digimarc Retail Experience is also an easy way for these national brands to begin their Digimarc journey on next.

Speaker Change: The razor blades are provided by our licensing DigiMark retail experience to the brands whose products are carried by that retailer, including the retailer's private label brands, allowing their products to interact with these points of detection.

Riley McCormack: As stated on a prior call, we believe that the TAM of licensing our platform to enable next-generation in-store operations is well into the nine figures of ARR. We believe the potential of the Digimarc retail experience is multiple larger still. But beyond these incredibly large hands, the Digimarc retail experience is also an easy way for these national brands to begin their Digimarc journey on that. Once their products are digitized, we will have the opportunity to be excellent at guiding these brands along their journey of solving additional problems through the adoption of other Digimarc solutions.

Speaker Change: As stated on a prior call, we believe that TAM of licensing our platform to enable next generation IMSR operations is well into the nine figures of ARR.

Speaker Change: We believe the TAM of DigiMark Retail Experience is multiple larger still.

Speaker Change: But beyond these incredibly large fans, DigiMark Retail Experience is also an easy way for these national brands to begin their DigiMark journey on maps.

Riley McCormack: Once their products are digitized, we will have the opportunity to be excellent at adding these brands along their journey of solving additional problems through the adoption of other Digimarc solutions. Moreover, the more national brand items digitized using our technology, the easier it is for additional retailers to license our platform to build out their own points of detection, while in parallel adopting Digimarc Retail Experience for their private label items. We expect most retailers will use our platform to build points of detection that utilize other means of product identification beyond the 1D, 2D, and digital watermarking signal that our platform supports.

Speaker Change: Once their products are digitized, we will have the opportunity to be excellent at guiding these brands along their journey of solving additional problems through the adoption of other DigiMark solutions.

Riley McCormack: Moreover, the more national brand items are digitized using our technology, the easier it is for additional retailers to license our platform to build out their own points of detection, while in parallel adopting Digimarc retail experience for their private label items. We expect most retailers will use our platform to build points of detection that utilize other means of product identification beyond the 1D, 2D, and digital watermarking signals that our platform supports.

Speaker Change: Moreover, the more national brand items digitized using our technology, the easier it is for additional retailers to license our platform to build out their own points of detection, while in parallel adopting benchmark retail experience for their private label items.

Speaker Change: We expect most retailers will use our platform to build points of detection that utilize other means of product identification beyond the 1D, 2D, and digital watermarking signal that our platform supports.

Riley McCormack: In Q2, we provided our largest commercial customer with demonstrable proof that our technology can carry a very heavy load in this multi-signal future, resulting in two important developments that give us confidence this flywheel is likely to start spinning. First, and most immediately, we believe this customer now understands that the more items in their stores that are digitized with our technology, including items produced by national brands, the more profound the improvement to their in-store operations will be.

Riley McCormack: In Q2, we provided our largest commercial customer with the monsterable proof that our technology can carry a very heavy load in this multi-signal future, resulting in two important developments that give us confidence this flywheel is likely to start spinning. First, and most immediately, we believe this customer now understands that the more items in their stores that are digitized with our technology, including items produced by national brands, the more profound improvement to their install operations will be. Second, we believe this customer also now understands the value of Digimarc delivering a greater amount of the software capabilities tiring their points of detection.

Speaker Change: In Q2, we provided our largest commercial customer with demonstrable proof that our technology can carry a very heavy load in this multi-signal future, resulting in two important developments that give us confidence this flywheel is likely to start spinning.

Speaker Change: First, and most immediately, we believe this customer now understands that the more items in their stores that are digitized with our technology...

Speaker Change: including items produced by national brands, the more profound the improvement to their instar operations will be.

Riley McCormack: Second, we believe this customer also now understands the value of Digimarc delivering a greater amount of the software capabilities powering their points of detection. This should ultimately increase the size and time-to-market of the RAZR component of this blind belt, not only with our initial customer but with subsequent customers as well. While I cannot provide any additional details at this time, I want to emphasize two key points. First, it is difficult to overstate the importance of these developments. Second, we expect and look forward to being able to share more information. Turning now to Digimarc Recycle, Q2SOS makes important progress on this ecosystem-driven opportunity as well.

Speaker Change: Second, we believe this customer also now understands the value of DigiMark delivering a greater amount of the software capabilities powering their points of detection.

Riley McCormack: They should ultimately increase the size and target market of the Razer component of the flywheel, not only with our initial customer, but with subsequent customers as well. While I cannot provide any additional details at this time, I want to emphasize two key points. First, it is difficult to overstate the importance of performance. Second, we expect them to look forward to being able to share more information soon.

Speaker Change: This should ultimately increase the size and time-to-market of the RAZR component of this blind belt, not only with our initial customer, but with subsequent customers as well.

Speaker Change: While I cannot provide any additional details at this time, I want to emphasize two key points.

Speaker Change: First, it is difficult to overstate the importance of these developments.

Speaker Change: Second, we expect and look forward to being able to share more information soon.

Riley McCormack: Turning that into the micropsycho, Q2 saw us make important progress on this ecosystem, given opportunity as well. On our February earnings call, we discussed a new go-to-market avenue for this revolutionary product in which we would work with a qualified partner who would lead a regional or country-wide roll-up. On our May call, I mentioned we were in conversations with multiple parties regarding this new path. Since then, the number of parties with whom we are having conversations has increased, as has a number of countries in which we are having these conversations. Moreover, thanks to a deeply valued ecosystem participant who believes as strongly as we do with both the environmental and economic ROI of our solution, we expect to soon receive introductions to multiple large and powerful entities capable of acting as our partners in additional countries.

Speaker Change: Turning now to Digimicrocycle, Q2 Sauce make important progress on this ecosystem-driven opportunity as well.

Riley McCormack: On our February earnings call, we discussed a new go-to-market avenue for this revolutionary product, in which we would work with a qualified partner who would lead a regional or countrywide rollout. On our May call, I mentioned we were in conversations with multiple parties regarding this new path. Since then, the number of parties with whom we are having conversations has increased, as has the number of countries in which we are having these conversations.

Speaker Change: On our February earnings call, we discussed a new go-to-market avenue for this revolutionary product in which we would work with a qualified partner who would lead a regional or countrywide rollout.

Speaker Change: On our May call, I mentioned we were in conversations with multiple parties regarding this new path.

Speaker Change: Since then, the number of parties with whom we are having conversations has increased, as has the number of countries in which we are having these conversations.

Riley McCormack: Moreover, thanks to a deeply valued ecosystem participant who believes as strongly as we do in both the environmental and economic ROI of our solution, we expect to soon receive introductions to multiple large and powerful entities capable of acting as our partners in additional countries. While we expect these will be elongated sales cycles, we are pleased with the progress and believe that the opening of our first country should accelerate our conversations, both existing and future.

Speaker Change: Moreover, thanks to a deeply valued ecosystem participant who believes as strongly as we do in both the environmental and economic ROI of our solution, we expect to soon receive introductions to multiple large and powerful entities capable of acting as our partners in additional countries.

Riley McCormack: While we expect these will be elongated sales cycles, we are pleased with the progress and believe that the opening of our first country should accelerate our conversations, both existing and future.

Speaker Change: While we expect these will be elongated sales cycles, we are pleased with the progress and believe that the opening of our first country should accelerate our conversations, both existing and future.

Riley McCormack: To that end, the first qualified partner between the entered conversations has told us they expect to be ready to sign the deal for the initial roll-out of Digimarc Cycle in a European country in the second half of this year.

Riley McCormack: To that end, the first qualified partner with whom we have had conversations tells us they expect to be ready to sign a deal for the initial rollout of Digimarc Recycle in a European country in the second half of this year. Finally, in breaking with our practice of not discussing new products until we've signed a market customer, I want to close my prepared remarks today by talking about a new market opportunity because of our confidence in the value of our solution and the materiality to our business if we are correct.

Speaker Change: To that end, the first qualified partner with whom we entered conversations has told us they expect to be ready to sign a deal for the initial rollout of Digimark Recycle in a European country in the second half of this year.

Riley McCormack: Finally, in breaking with our practice of not discussing new products until we sign the market customer, I want to close my prepared remarks today by talking about a new market opportunity because there are confidence in the value of our solution and the materiality to our business if we are correct. For over a quarter of a century, we have worked at the world's central banks to protect our currencies. However, one of the fastest growing in those conditions to pass on a class of currency isn't against the banknotes issued by federal governments, but the currency issued by brands and retailers: gift cards.

Speaker Change: Finally, in breaking with our practice of not discussing new products until we've signed a market customer, I want to close my prepared remarks today by talking about a new market opportunity because of our confidence in the value of our solution and the materiality to our business if we are correct.

Riley McCormack: For over a quarter of a century, we have worked at the world's central banks to protect our currency. However, one of the fastest growing and most pernicious attacks on the class of currency isn't against the banknotes issued by federal governments but the currency issued by brands and retailers.

Speaker Change: For over a quarter of a century we have worked at the world's central banks to protect our currencies.

Speaker Change: However, one of the fastest growing and most pernicious attacks on a class of currency isn't against the banknotes issued by federal governments, but the currency issued by brands and retailers, gift cards.

Riley McCormack: As I mentioned in the past, we expect our most exciting opportunities to come from prospects experiencing problems that can be uniquely solved by our ability to identify and authenticate physical and digital items where other means of identification and authentication don't work well or don't work at all. It has been incumbent upon us to determine A, if there is a sizeable and repeatable business problem, that B, additional prospects beyond the first have an urgency to solve, where C, we can provide a solution of enduring and differentiated value that B presents us a path that fast and profitable scale.

Riley McCormack: As I've mentioned in the past, we expect our most exciting opportunities to come from prospects experiencing problems that can be uniquely solved by our ability to identify and authenticate physical and digital items where other means of identification and authentication don't work well or don't work at all. It is then incumbent upon us to determine, A, if there is a sizable and repeatable business problem that, B, additional prospects beyond the first have an urgency to solve, or, C, we can provide a solution of enduring and differentiated value that, D, presents us a path that fastens profitable scale. This is exactly how our opportunity in gift cards has developed. Gift cards face multiple attack factors, and the cost of these attacks, both monetary and reputational, is real and is getting worse.

Speaker Change: As I've mentioned in the past we expect our most exciting opportunities to come from prospects experiencing problems that can be uniquely solved by our ability to identify and authenticate physical and digital items where other means of identification and authentication don't work well or don't work at all.

Speaker Change: It is incumbent upon us to determine, A, if there is a sizable and repeatable business problem that, B, additional prospects beyond the first have an urgency to solve, or C, we can provide a solution of enduring and differentiated value that, D, presents us a path to fast and profitable scale.

Riley McCormack: This is exactly how our opportunity and gift cards has developed. Gift cards face multiple attack vectors, and the cost of these attacks, of monetary and reputation, are real in of getting worse. Moreover, existing solutions are expensive and effective, and it is becoming clear to the industry, both ecosystem partners and end customers, that we have a significant role to play. We believe we can provide a solution today that addresses some of the most common attack vectors, providing a significant increase in efficacy while actually reducing the current dollar materials costs, delivering a meaningful and attractive ROI. That combined with the expected ease of implementation should offer rapid scaling post-initial adoption.

Speaker Change: This is exactly how our opportunity in gift cards has developed.

Speaker Change: GIF cards face multiple attack vectors and the cost of these attacks, both monetary and reputational, are real and are getting worse. Moreover, existing solutions are expensive and ineffective and it is becoming clear to the industry, both ecosystem partners and end customers, that we have a significant role to play.

Riley McCormack: Moreover, existing solutions are expensive and ineffective, and it is becoming clear to the industry, both ecosystem partners and end customers, that we have a significant role to play. We believe we can provide a solution today that addresses some of the most common attack vectors, providing a significant increase in efficacy while actually reducing the current dole of materials costs, delivering a meaningful and attractive ROI. That, combined with the expected ease of implementation, should allow for rapid scaling post-initial adoption.

Speaker Change: We believe we can provide a solution today that addresses some of the most common attack vectors, providing a significant increase in efficacy while actually reducing the current dual materials costs, delivering a meaningful and attractive ROI.

Speaker Change: That, combined with the expected ease of implementation, should allow for rapid scaling post-initial adoption.

Riley McCormack: Moreover, while no material dependencies prevent any single gift card issuer from independently adopting our solution, many industry participants are aware of our work and are interested in finding a widely adoptable solution that the large and growing level of loss is leading to grave concerns in the industry. Thus, our opportunity and the gift card industry share the most attractive attributes of our ecosystem-driven opportunities, namely the likelihood of rapid scaling and incredible stickiness once scaled, without the multi-stakeholder dependencies that characterize these opportunities as ecosystem-driven. We are likely to launch our gift card offering with a few different implementation architectures that we believe yield a US market camera of 900 million to 1.5 billion of ARR.

Riley McCormack: Moreover, while no material dependencies prevent any single gift card issuer from independently adopting our solution, many industry participants are aware of our work and are interested in finding a widely adoptable solution if the large and growing level of loss is leading to grave concerns in the industry. Thus, our opportunity in the gift card industry shares the most attractive attributes of our ecosystem-driven opportunities, namely the likelihood of rapid scaling and incredible stickiness once scaled, without the multi-stakeholder dependencies that characterize these opportunities as ecosystem-driven.

Speaker Change: Moreover, while no material dependencies prevent any single gift card issuer from independently adopting our solution, many industry participants are aware of our work and are interested in finding a widely adoptable solution if the large and growing level of loss is leading to grave concerns in the industry.

Speaker Change: Thus, our opportunity in the gift card industry shares the most attractive attributes of our ecosystem-driven opportunities, namely the likelihood of rapid scaling and incredible stickiness once scaled, without the multi-stakeholder dependencies that characterize these opportunities as ecosystem-driven.

Riley McCormack: We are likely to launch our gift card offering with a few different implementation architectures that we believe will yield a U.S. market camera net of $900 million to $1.5 billion of ARR. While we are starting in the U.S. because this is where our initial prospect and partner engagements have occurred, there is nothing that we or the industry see that prevents this from being a global solution. In fact, as stated earlier, our ability to act as a universal and global solution seems to be one of the things about which the industry is most excited. Although we haven't yet conducted a detailed analysis to quantify the global TAM, it will be significantly larger than that of the U.S. alone.

Speaker Change: We are likely to launch our gift card offering with a few different implementation architectures that we believe yield a U.S. market camera near from 900 million to 1.5 billion of ARR.

Riley McCormack: While we are starting in the US because this is where our initial prospect and partner engagements have occurred, there is nothing that we or the industry see that prevents us from being a global solution. In fact, as stated earlier, our ability to act as a universal and global solution seems to be one of the things about which the industry is most exciting. Although we haven't yet conducted a detailed analysis to quantify the global tan, it will be significantly larger than that of the US alone. Moreover, as we continue to build additional features into our solution to address more attack vectors, we believe we should build a capture of share of that added value, providing further upside to our tan.

Speaker Change: While we are starting in the U.S. because this is where our initial prospect and partner engagements have occurred, there is nothing that we or the industry see that prevents this from being a global solution.

Speaker Change: In fact, as stated earlier, our ability to act as a universal and global solution seems to be one of the things about which the industry is most excited.

Speaker Change: Although we haven't yet conducted a detailed analysis to quantify the global TAM, it will be significantly larger than that of the U.S. alone.

Riley McCormack: Moreover, as we continue to build additional features into our solution to address more attack vectors, we believe we should be able to capture a share of that added value, providing further upside to our camp. While the excitement and urgency shown by the industry have been remarkable, there is still more to learn as we advance this work, and I want to caution: we don't know what we don't know. However, the list of things we don't know is shrinking rapidly, giving us comfort in discussing this opportunity today.

Speaker Change: Moreover, as we continue to build additional features into our solution to address more attack vectors, we believe we should be able to capture a share of that added value, providing further upside to our CAM.

Riley McCormack: While the excitement and urgency shown by the industry has been remarkable, there is still more to learn as we advance this work, and I want to caution that we don't know what we don't know. However, the list of things we don't know was shrinking rapidly, giving us comfort in discussing this opportunity today. In addition to our obvious excitement about this opportunity stand alone, it also ductails nicely with other retail and lost prevention solutions we are progressing, including a solution addressing the fact of prepared food, for which we signed an initial deal with the regional grocer in Q2.

Speaker Change: While the excitement and urgency shown by the industry has been remarkable, there is still more to learn as we advance this work, and I want to caution, we don't know what we don't know. However, the list of things we don't know is shrinking rapidly, giving us comfort in discussing this opportunity today.

Riley McCormack: In addition to our obvious excitement about this opportunity stand-alone, it also dovetails nicely with other retail loss prevention solutions we are progressing, including a solution addressing the theft of prepared food, for which we signed an initial deal with a regional grocer in Q2. I focused my comments today on the gift card opportunity because of the urgency with which the industry is engaging, as well as the massive TANF it represents. However, it is important to note that the potential to offer a suite of value-approved products leveraging the same technology and sold to the same loss prevention buyers is exciting, as it provides us another avenue to be easy to begin doing business with and excellently guide customers along their Digimarc journey.

Speaker Change: In addition to our obvious excitement about this opportunity standalone, it also dovetails nicely with other retail loss prevention solutions we are progressing, including a solution addressing the theft of prepared food, for which we signed an initial deal with a regional grocer in Q2.

Riley McCormack: I focus my comments today on the gift card opportunity because of the urgency with which the industry is engaging, as well as the massive tan it represents. However, it is important to note that the potential to offer a suite of value with freedom products leveraging the same technology and sold with the same lost prevention buyers is exciting, as it provides us another avenue to be easy to begin doing business with, and excellent guiding customers along with our digital opportunity. Finally, we will not in immediate focus. We believe there are future synergies that can be unlocked between our retail loss prevention offerings and digital retail experience.

Speaker Change: I focused my comments today on the gift card opportunity because of the urgency with which the industry is engaging, as well as the massive TANF it represents.

Speaker Change: However, it is important to note that the potential to offer a suite of value-approved products leveraging the same technology and sold to the same loss prevention buyers is exciting, as it provides us another avenue to be easy to begin doing business with and excellently guiding customers along their DigiMark journey.

Riley McCormack: Finally, while not an immediate focus, we believe there are future synergies that can be unlocked between our retail loss prevention operands and the Digimarc retail experience, as retail loss prevention and retail operations are closely intertwined. We will keep you updated as things progress. I will now turn the call over to Charles to discuss our financial results. Thank you, Riley, and hello, everyone.

Speaker Change: Finally, while not an immediate focus, we believe there are future synergies that can be unlocked between our retail loss prevention offerings and DigiMark Retail Experience, as retail loss prevention and retail operations are closely intertwined. We will keep you updated as things progress.

Riley McCormack: As retail loss prevention and retail operations are closely intertwined, we will keep you updated as things to rest.

Charles Beck: Financial highlights on a year-over-year basis for the second quarter included ending ARR increased 44% Commercial subscription revenue increased 39%. Subscription gross profit margin was 89%, a 5% percentage point improvement. Total expenses only increased 2%, and non-GAAP net loss decreased 14%.

Charles Beck: I will now turn the call over to Charles to discuss our financial results.

Charles Beck: Thank you, Riley, and hello everyone. Financial highlights on a year-to-year basis for the second quarter included. Ending error increased 44%; commercial subscription revenue increased 39%; subscription gross profit margin was 89%, a 5% percentage point improvement; total expenses only increased 2%; and non-GAAP net loss decreased 14%.

Speaker Change: And we'll now turn the call over to Charles who discuss our financial results.

Charles Beck: Thank you, Riley, and hello, everyone. Financial highlights on a year-over-year basis for the second quarter included ending AR increased 44%, commercial subscription revenue increased 39%,

Charles Beck: Subscription gross profit margin was 89% a 5% percentage point improvement.

Speaker Change: Total expenses only increased 2% and non-GAAP net loss decreased 14%.

Charles Beck: We continue to focus on delivering improvement in these financial metrics as their critical levers in reaching positive free cash flow. Ending error increased 44%, from 16.7 million at the end of June last year to 23.9 million at the end of June this year. The year-to-year increase in error are largely reflects the impact of new customer contracts and several important customer upsells, partially offset by customer turn. Total revenue for the quarter was 10.4 million and increased at 1.6 million or 19% from 8.7 million in due to last year, reflecting strong growth and subscription revenue. Subscription revenue, which accounted for 61% of total revenue for the quarter, grew 36% from 4.7 million to 6.4 million.

Charles Beck: We continue to focus on delivering improvement in these financial metrics as they're critical levers in reaching positive free cash flow. Ending ARR increased 44% from $16.7 million at the end of June last year to $23.9 million at the end of June this year. The year-over-year increase in AR largely reflects the impact of new customer contracts and several important customer upsells, partially offset by customer turnover. Total revenue for the quarter was $10.4 million, an increase of $1.6 million, or 19%, from $8.7 million in Q2 last year, reflecting strong growth in subscription revenue.

Speaker Change: We continue to focus on delivering improvement in these financial metrics as they're critical levers in reaching positive free cash flow.

Speaker Change: Ending ARR increased 44% from $16.7 million at the end of June last year to $23.9 million at the end of June this year.

Speaker Change: The year-over-year increase in AR largely reflects the impact of new customer contracts and several important customer upsells, partially offset by customer churn.

Speaker Change: Total revenue for the quarter was $10.4 million, an increase of $1.6 million, or 19%, from $8.7 million in Q2 last year, reflecting strong growth in subscription revenue.

Charles Beck: Scription revenue, which accounted for 61% of total revenue for the quarter, grew 36% from $4.7 million to $6.4 million. The increase reflects subscription revenue recognized on new customer contracts as well as upsells on existing customer contracts. Commercial subscription revenue grew at an even higher rate of 39%. Service revenue decreased 1% from $4.1 million to $4 million, reflecting slightly lower commercial services.

Speaker Change: Subscription revenue, which accounted for 61% of total revenue for the quarter, grew 36% from $4.7 million to $6.4 million. The increase reflects subscription revenue recognized on new customer contracts, as well as upsells on existing customer contracts.

Charles Beck: The increase reflects subscription revenue recognized on new customer Brooks. Commercial subscript, rather, grew at a higher rate of 39%. Service revenue decreased 1%, from 4.1 million to 4 million, reflecting slightly lower commercial services. Subscription gross profit margin improved from 84% in Q2 last year, 89% in Q2 this year, representing a 5% percentage point improvement. The significant increase year-over-year reflects both the strong growth in subscription revenue and a favorable mix in subscription revenue to our new products. Service gross profit margin improved from 51% in Q2 last year to 58% in Q2 this year, reflecting a favorable change in labor mix.

Speaker Change: Commercial subscription rather grew at an even higher rate of 39%.

Speaker Change: [inaudible]

Speaker Change: Service revenue decreased 1% from $4.1 million to $4 million, reflecting slightly lower commercial services.

Charles Beck: Subscription gross profit margin improved from 84% in Q2 last year to 89% in Q2 this year, representing a 5 percentage point improvement. The significant increase year-over-year reflects both the strong growth in subscription revenue and a favorable mix of subscription revenue to earnings reports. Service Gross Profit Margin improved from 51% in Q2 last year to 58% in Q2 this year, reflecting a favorable change in the labor market. We expect to generate mid-50% service gross margins on a norm-wise basis with some fluctuation quarter-to-quarter. Operating expenses for the quarter were $16.8 million, compared to $16.1 million in Q2 last year, an increase of 4%.

Speaker Change: Subscription gross profit margin improved from 84% in Q2 last year to 89% in Q2 this year, representing a five percentage point improvement.

Speaker Change: The significant increase year-over-year reflects both the strong growth in subscription revenue and a favorable mix in subscription revenue to our newer products.

Speaker Change: Service gross profit margin improved from 51% in Q2 last year to 58% in Q2 this year, reflecting a favorable change in labor mix.

Charles Beck: We expect to generate mid 50% service gross margins on an online basis, with some fluctuation quarter to quarter. Operating expenses for the quarter were 16.8 million, compared to 16.1 million in Q2 last year, an increase of 4%. Roughly half of the increase was due to lower cost being allocated from operating expenses to cost of revenue this quarter due to lower building services. Total expenses, which exclude the impacted allocations, only increased 2% year-over-year. Comparing this number to the 39% growth we delivered in the social subscription revenue shows the operating leverage we've been focused on building into our business.

Speaker Change: We expect to generate mid-50% service gross margins on a non-lag basis with some fluctuation quarter to quarter.

Speaker Change: Operating expenses for the quarter were $16.8 million compared to $16.1 million in Q2 last year, an increase of 4%.

Charles Beck: Roughly half of the increase was due to lower costs being allocated from operating expenses to cost of revenue this quarter due to lower billable services. Total expenses, which exclude the impact of allocations, only increased 2% year over year. Comparing this number to the 39% growth we delivered in commercial subscription revenue shows the operating leverage we've been focused on building into our business. To continue driving this considerable operating leverage, we are focusing on maximizing our productivity and efficiency as an organization, including better leveraging the capability of tools like GenAI to minimize the impact of rising labor and other costs.

Speaker Change: Roughly half of the increase was due to lower costs being allocated from operating expenses to cost of revenue this quarter due to lower billable services.

Speaker Change: Total expenses, which exclude the impact of allocations, only increase 2% year-over-year.

Speaker Change: Comparing this number to the 39% growth we delivered in commercial subscription revenue shows the operating leverage we've been focused on building into our business.

Charles Beck: To continue driving this considerable operating leverage, we're focusing on maximizing productivity and efficiency as an organization, including better leveraging the capability of tools like Gen AI to minimize the impact of rising labor and other costs. Non-GAAP operating expenses, which exclude non-cash and non-occurring items, were 14.9 million in Q2 last year. Again, roughly half of this cost was due to lower cost being allocated from operating expenses to cost of revenue this quarter because of lower building expenses. Net loss per share for the quarter of 43 cents versus 53 cents in Q2 last year. Non-GAAP net loss per share was also considered very lower for the quarter at 23 cents versus 29 cents in Q2 last year.

Speaker Change: To continue driving this considerable operating leverage, we are focusing on maximizing our productivity and efficiency as an organization, including better leveraging the capability of tools like GenAI to minimize the impact of rising labor and other costs.

Charles Beck: Non-GAAP operating expenses, which exclude non-cash and non-recurring items, were $14 million for the quarter, up 8% compared to $12.9 million in Q2 last year. Again, roughly half of this cost was due to lower costs being allocated from operating expenses to cost of revenue this quarter because of lower billable expenses. Net loss per share for the quarter was $0.43 versus $0.53 in Q2 last year. Non-GAAP net loss per share was also considerably lower for the quarter at $0.23 vs. $0.29 in Q2 last year.

Speaker Change: Non-GAAP operating expenses, which exclude non-cash and non-recurring items, were $14 million for the quarter, up 8% compared to $12.9 million in Q2 last year. Again, roughly half of this cost was due to lower costs being allocated from operating expenses to cost of revenue this quarter because of lower billable expenses.

Speaker Change: Net loss per share for the quarter is $0.43 versus $0.53 in Q2 last year. Non-GAAP net loss per share was also considerably lower for the quarter at $0.23 versus $0.29 in Q2 last year.

Charles Beck: We ended the quarter with 41.5 million in cash and short-term investments. Pre-cash flow using to a 6.9 million for the quarter compared to 7.9 million in Q2 last year. Given the cash flow is complex, rate quarter to quarter, depending on the timing of receipts and payables, we continue to believe that a good proxy for a normalized level of pre-cash flow is using non-GAAP loss plus capital expenditures. While cash burn in the first half of 2024 was above this proxy, we expect the unfavorable fluctuations on timing of receipts and payables to averse in the second half, leading to full-year cash flow being generally in line with this proxy and hence pre-cash flow in the second half to be much better than the first.

Charles Beck: We ended the quarter with $41.5 million in cash and short-term investments. Pre-cash flow usage was $6.9 million for the quarter compared to $7.9 million in Q2 last year. Given that cash flows can fluctuate quarter to quarter, depending on the timing of receipts and payables, we continue to believe that a good proxy for a normalized level of free cash flow is using non-gap loss plus capital expenditure. While the cash burden in the first half of 2024 was above this proxy, we expect the unfavorable fluctuations on timing of receipts and payables to reverse in the second half, leading to full-year cash flow being generally in line with this proxy and hence free cash flow in the second half to be much better than the first.

Speaker Change: We ended the quarter with $41.5 million in cash and short-term investments.

Speaker Change: Free cash flow usage was $6.9 million for the quarter compared to $7.9 million in Q2 last year.

Speaker Change: Given that cash flows can fluctuate quarter to quarter depending on the timing of receipts and payables, we continue to believe that a good proxy for a normalized level of free cash flow is using non-gap loss plus capital expenditures.

Speaker Change: Well, cash burn in the first half of 2024 was above this proxy.

Speaker Change: We expect the unfavorable fluctuations on timing of receipts and payables to reverse in the second half.

Speaker Change: leading to full year cash flow being generally in line with this proxy and hence free cash flow in the second half to be much better than the first.

Charles Beck: For further discussion of our financial results and recent prospects for our business, please see our Form 10-Q that will be filed with the SEC. I'll now turn the call back over to Riley for final remarks. Thanks, Charles.

Charles Beck: For further discussion of our financial results and recent prospects for a business, please share a full and ten Q that will be filed with the SEC.

Speaker Change: For further discussion on our financial results and risks and prospects for our business, please see our Form 10-Q that will be filed with the SEC. I'll now turn the call back over to Riley for final remarks.

Riley McCormack: I'll now turn the call back over to Rally for final remarks. Thanks, Charles. In Q2, we made significant progress on multiple fronts. Highlighted by meaningful development in two of our ecosystem-driven opportunities and the rapid progression of an attractive new market opportunity in protecting gift cards from the ever-increasing threats they face. The developments in the ecosystem-driven opportunities give us confidence that we are likely on the precipice of getting these two flywheels spinning. The rapid progression of our opportunity and gift cards is standalone exciting, and can also serve as a cornerstone for a broader suite of offerings that help retailers combat one of their most pressing business challenges, the ever-precising prevalence and cost of strength.

Riley McCormack: In Q2, we made significant progress on multiple fronts, highlighted by meaningful development in two of our ecosystem-driven opportunities and the rapid progression of an attractive new market opportunity for protecting gift cards from the ever-increasing threats they face. The developments in these ecosystem-driven opportunities give us confidence that we are likely on the precipice of getting these two flywheels spinning. The rapid progression of our opportunity in gift cards is stand-alone exciting and could also serve as a cornerstone for a broader suite of offerings to help retailers combat one of their most pressing business challenges, the ever-increasing prevalence and cost of shrinkage.

Riley McCormack: Thanks, Charles.

Riley McCormack: In Q2, we made significant progress on multiple fronts, highlighted by meaningful development in two of our ecosystem-driven opportunities and the rapid progression of an attractive new market opportunity in protecting gift cards from the ever-increasing threats they face.

Riley McCormack: The developments in the ecosystem-driven opportunities give us confidence that we are likely on the precipice of getting these two flywheels spinning.

Riley McCormack: The rapid progression of our opportunity in gift cards is stand-alone exciting and can also serve as a cornerstone for a broader suite of offerings that help retailers combat one of their most pressing business challenges, the ever-increasing prevalence and cost of shrink.

Riley McCormack: While we continue to expect our business to be one day until we reach a larger scale, the progress we made in Q2 further demonstrates that, as a result of our laser-like focus on the execution of our strategy and a core kind of theorem, we are not only on track to unlock the massive cams in which we are focused today, but also that new cams can rapidly develop. We are positioning ourselves to convert our large total addressable markets into substantial free cash roll by delivering high and long lasting growth at world-class operating margins. Our progress in Q2 gives us even greater confidence in our ability to achieve this goal.

Riley McCormack: While we continue to expect our business to be lumpy until we reach a larger scale, the progress we've made in Q2 further demonstrates that, as a result of our laser-like focus on the execution of our strategy and the core tenets therein, we are not only on track to unlock the massive TAMs on which we are focused today but also that new TAMs can rapidly develop. We are positioning ourselves to convert our large total addressable markets into substantial free cash flow by delivering high and long-lasting growth at world-class operating margins. Our progress in Q2 gives us even greater confidence in our ability to achieve this goal. The operator will now open the call for questions. Thank you.

Riley McCormack: While we continue to expect our business to be lumpy until we reach a larger scale.

Riley McCormack: The progress we made in Q2 further demonstrates that as a result of our laser-like focus on the execution of our strategy,

Speaker Change: and a core tennis veteran.

Speaker Change: We are not only on track to unlock the massive TAMs on which we are focused today, but also that new TAMs can rapidly develop. We are positioning ourselves to convert our large total addressable markets into substantial free cash flow by delivering high and long-lasting growth at world-class operating margins.

Speaker Change: Our progress in Q2 gives us even greater confidence in our ability to achieve this goal. Operator will now open the call for questions.

Operator: Operator will now come to the call for questions. Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 under the telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset who are pressing the star keys. One moment, please, will we pull for questions. Thank you.

Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue... For participants using speaker equipment, it may be necessary to pick up the handset you are pressing to start.

Speaker Change: Riley I'm Riley McCormack. We'll see you next time.

Speaker Change: Thank you. At this time, we will be conducting a question and answer session.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from Joshua Reilly with Needham. All right, great. Thanks for taking my questions and nice job on developing some of these product opportunities here in the last couple quarters. Maybe just starting off on Net New ARR, can you just give us some additional details on... Maybe what type of customer churned in the quarter? Did you consider them core to the business? And maybe how the Center of Expertise program for partners impacted Net New AR? Yeah, thanks for the question. The

Speaker Change: One moment, please, while we poll for questions.

Charles Beck: Most of the term was specifically related to the transition of our COE program, so as Riley stated in the prepared remarks, we don't expect to see any more customers move into the COE program, so we expect that most of that is behind us at this point. Yeah, Josh, Josh, maybe if I double click on that just a little quickly, our traditional part in the BAR program, there were two types of partners we had there.

Joshua Reilly: Our first question comes from Joshua Riley with Needle. All right. Great. Thanks for taking my questions and a nice job on developing some of these products opportunity here in the last couple quarters. Maybe just starting off on net new ARR. Can you just give us some additional details on maybe what type of customer turned in the quarter. Did you consider them courted the business and maybe how the center of expertise program for partners impacted net new ARR in the quarter. Yeah, thanks for the question. The most of the term was specifically related to transition to our COE program.

Speaker Change: [inaudible]

Speaker Change: Thank you. Our first question comes from Joshua Riley with Needham.

Charles Beck: We had the big partners who were technologically capable and really wanted to use Illuminate to build their own products and services on top of it. And then we had a bunch of partners that maybe had less interest in building things but wanted access to our technology because they had a ton of customers and they wanted to sell our existing products. And then we have a third class of partners that would have fallen into that second category but didn't want to sign up for the bar.

Joshua Riley: All right, great. Thanks for taking my questions and nice job on developing some of these product opportunities here in the last couple quarters. Maybe just starting off on Net New ARR, can you just give us some additional details on

Speaker Change: maybe what type of customer churned in the quarter, did you consider them core to the business, and maybe how the Center of Expertise program for partners impacted Net New ARR in the quarter.

Riley McCormack: So we still have partners that we consider under our bar model. These are the bigger customers who want to build things on top of Illuminate. But our focus has been on the second group, getting to a bigger group of potential partners. And that's what the COE program allows. And the reason it allows is that it has lower upfront costs, right? We actually have a tier of COE that is free.

Riley McCormack: It's our entry tier, but we're not trying to monetize the relationship as much, the direct relationship with a partner. We are trying to both have skin in the game so we can go after their customers and help their customers solve a ton of problems. So that's what I meant when, you know, the transition is lower upfront. Our COE deals are going to be less than our traditional bar deals on day one, but they are set up to be focused more on the massive pipeline from the end customers that we can service together. And that's why I said, over time, it's going to lead to a lot higher ARR.

Speaker Change: Yeah, thanks for the question.

Speaker Change: The

Speaker Change: Most of the churn was specifically related to transition of our COE program, so as Riley stated in her prepared remarks, we don't expect to see any more customers be moving.

Riley McCormack: So is Riley stated and will prepare the remarks. We don't expect to see any more customers be moving in the COE program. So we expect that most of that is behind us at this point. Yeah, Josh, Josh, maybe if I double click on that just, just quickly. Our traditional product in the bar program. There were two types of partners we had in there. We had the big partners who were technologically capable and really wanted to use Eliminate to build their own products and services on top of. And then we had a bunch of partners that maybe I'm less interested in building things wanted access to our technology to get a ton of customers, and they wanted to sell our existing products.

Speaker Change: in the COE program, so we expect that most of that is behind us at this point.

Speaker Change: Yeah, Josh, maybe if I double click on that just quickly, our traditional program, the bar program.

Speaker Change: There were two types of partners we had in there. We had the big partners who were technologically capable and really wanted to use Illuminate to build their own products and services on top of.

Speaker Change: And then we had a bunch of partners that maybe had less interest in building things, wanted access to our technology because they have a ton of customers and they wanted to sell our existing products.

Riley McCormack: And then we had a third class of partners that would have fallen to that second category that didn't want to sign up in a bar. So we still have partners that we consider under our model. These are the bigger customers who want to build things on top of Eliminate. We've been our focus is been on the second group is getting to a bigger group of potential partners. And that's what the COE program allows, and the reason it allows is it's lower upfront cost. They're really going to have a peer of COE that is free. You know, it's our entry gear.

Speaker Change: And then we have a third class of partners that would have fallen into that second category but didn't want to sign up for the bar. So we still have partners that we consider under our bar model. These are the bigger customers who want to build things on top of Illuminate. We've been...

Speaker Change: Our focus has been on the second group, is getting to a bigger group of potential partners and that's what the COE program allows, and the reason it allows is it's lower upfront costs.

Speaker Change: We actually have a tier of COE that is free. You know, it's our entry tier. But we're not trying to monetize the relationship as much, the direct relationship with a partner. We are trying to both have skin in the game so we can go after their customers and help their customers solve a ton of problems.

Riley McCormack: But it's we're not trying to monetize the relationship as much. We are the direct relationship of a partner. We are trying to both have skin in the game so we can go after their customers and help their customers solve the kind of problems. So that's what I meant when you know the transition is low front air. Our COE deals are going to be less than our traditional bar deals on day one. But they are set up to be focused for on the massive pipeline from the end customers that we can service together, and that's why it's over time.

Speaker Change: So, that's what I meant when, you know, the transition is low on air. Our COE deals are going to be less than our traditional bar deals on day one.

Speaker Change: But they are set up to be focused more on the massive pipeline

Joshua Reilly: It's going to lead to a lot higher ARR, and it's also more focused because they're selling our products, or they're reselling our products, or they're bringing us leads for our products, as opposed to them building their own things on top of it. Does that answer your question a little bit? That's very helpful. I think and provide some clarity on what's going on there.

Speaker Change: from the end customers that we can service together. And that's why I said over time it's going to lead to a lot higher ARR. And it's also more focused because they are selling our products, or they are reselling our products, or they are bringing us leads for our products, as opposed to them building their own things on top of it. Does that answer your question a little bit?

Speaker Change: That's very helpful I think and provides some nice clarity on what's going on there.

Riley McCormack: And it's also more focused because they're selling our products, or they're reselling our products, or they're bringing us leads for our products, as opposed to them building their own things on top of it. Does that answer your question a little bit? That's very helpful, I think, and provides some nice clarity on what's going on. Maybe moving on here, if you look at some of the legislation that's progressing in Europe and Canada around plastic recycling, can you just give us any updates you have in terms of timelines, any change in expectations you have on how the projects will progress relative to maybe public statements you've made previously, and maybe just any other relevant information that investors should be aware of with the current recycling opportunities.

Joshua Reilly: Maybe moving on here, if you look at some of the legislation that's progressing in Europe and Canada around plastic recycling, can you just give us any updates you have in terms of timelines, any change in expectations you have on how the projects will progress relative to kind of maybe public statements you've made previously, and maybe just any other relevant information that investors should be aware of with the current recycling opportunity. Yeah, it's great. And I definitely put you back to the fair of remarks where it said our first partner and our new data market motion.

Speaker Change: Maybe moving on here, if you look at some of the legislation that's progressing in Europe and Canada around plastic recycling, can you just give us any updates you have in terms of timelines?

Speaker Change: Any change in expectations you have on how the projects will progress relative to maybe public statements you've made previously, and maybe just any other relevant information that investors should be aware of with the current recycling opportunity.

Riley McCormack: Yeah, that's great. And I'll definitely point you back to the two remarks where it said the first partner in our new go-to-market strategy. They've told us they expect to sign a deal in the second half of this year to start in a European country, which is... huge.

Speaker Change: Yeah, that's great. And I'll definitely point you back to the pair of remarks where it said our first partner in our new go-to-market motion. They've told us they expect to sign a deal in the second half of this year to start in a European country, which is...

Riley McCormack: We they told us they expected to find a deal in the second half this year to start a European country, which is huge. We're also expanding the number of partners we're in conversation with, but not just the number of customers, but other countries. And we expect to have a whole other way of additional potential partners that we're getting introductions to from a very powerful and wonderful partner of ours. So that's, you know, on the opening up Digimark Recycle Market, which is where our focus is. Holy Grail work continues. And if you refer to the coordinator in snapshot, you'll see that there's some revenue coming in the back half of this year from Holy Grail Work, which is important.

Riley McCormack: We're also expanding the number of partners we're in conversation with, both not just number of customers but other countries. And we expect to have a whole other wave of additional potential partners that we're getting introductions to from a very powerful and wonderful partner of ours. So that's, you know, on the opening up of Digimarc Recycle Markets, which is where our focus is. Holy Grail work continues.

Speaker Change: We're also expanding the number of partners we're in conversation with, not just number of customers, but other countries, and we expect to have a whole other wave of additional potential partners that we're getting introductions to from a very powerful and wonderful partner of ours.

Speaker Change: So that's, you know, on the opening up DigiMark Recycle Markets, which is where our focus is. Holy Grail work continues. And if you refer to the quarterly earnings snapshot, you'll see that

Riley McCormack: And if you refer to the quarterly earnings snapshot, you'll see that there's some revenue coming in the back half of this year from the Holy Grail work, which is important. You know, it's continued proof of concept. Never have I seen 170 organizations do a very public POC on a single company software like Holy Grail. It's wonderful. It's in so many different ways.

Operator: Greetings and welcome to the Digimarc Corporation's second quarter, 2024 Financial Results Conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker Change: There's some revenue coming in the back half of this year from the Holy Grail work, which is important. You know, it's continued proof of concept.

Riley McCormack: You know, it's continued proof of concept. I've never seen 170 organizations do a very public policy on a single company software like Holy Grail is. It's wonderful. It's so many different ways. Not only regulation, there's a better regulation. This is, depending on who you talk to, top three problem are our growth faces, right, is that we only have one planet. And we got to solve for the plastic recycling issue. So kind of regulation are, we don't want to wait for regulation to be the driver. Regulations are wonderful talent. You know, people can see the right you on the wall and see what's coming down to regulation.

Speaker Change: I've never seen 170 organizations do a very public POC on a single company software like Holy Grail is, it's wonderful, it's in so many different ways. Now the regulation, there's a ton of regulations.

Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Riley McCormack: Now the regulation, there's a ton of regulation. This is. Depending on who you talk to, the top three problems our globe faces, right, is that we only have one planet and we've got to solve the plastic recycling issue.

George Karamanos: It is now my pleasure to introduce your host, George Karamanos. Thank you. You may begin.

Speaker Change: Depending on who you talk to, top three problems are global faces.

George Karamanos: 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 financial results. This will be followed by a question and answer form. We have posted our prepared remarks and our quarterly earnings snapshot 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 four looking statements that have risks and uncertainty. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially.

Speaker Change: Right, is that we only have one planet.

Riley McCormack: So, kind of regulation; we don't want to wait for regulation to be the driver. It's a wonderful tailwhip. You know, people can see the writing on the wall and see what's coming down from regulation. So I think it gives urgency to the conversation, but we don't want to rely on that. We want to drive our own urgency. And so that's what we're really focused on in these conversations for this new go-to-market, this partnership model for Digimarc recycling. I got it.

Speaker Change: and we've got to solve for the plastic recycling issue.

Speaker Change: So, ton of regulation. We don't want to wait for regulation to be the driver. Regulation is a wonderful talent.

Riley McCormack: Riley will now provide a business update.

Speaker Change: You know, people can see the writing on the wall and see what's coming down from regulation. So I think it gives an urgency to the conversation, but we don't want to rely on that. We want to drive our own urgency. And so that's what we're really focused on in these conversations for this new go-to-market, this partnership model of Digimark Recycle.

Joshua Reilly: So I think it gives an urgency to the conversation, but we don't want to remind that we want to drive our own urgency. And so that's what we really focus on these conversations, so this new data market is partnership model and Digimark Recycle. Got it. That's helpful.

Riley McCormack: That's helpful. And then you highlighted in your prepared remarks that in Q2, you demonstrated, with your largest commercial customer, the ability to carry a heavy load in a multi-signal future. I know that you're limited in what you can discuss about this, but can you just discuss or maybe, you know, from a high level, explain what you were referring to maybe with this particular development? Yeah, I would point to the two developments that I, that I mean, that fact is powerful, right?

Joshua Reilly: And then you highlighted in the prepared remarks that in Q2, you demonstrated with your largest commercial customer the ability to carry a heavy load and a multi-signal future. I know that you're limited with what you can discuss with this, but can you just discuss or maybe just, you know, from a high level explain what you were referring to, maybe with this particular statement. Yeah, I would point to the two developments that I, that I mean, that fact is powerful, right, and interesting, but what's really important is the two developments that come from that fact. The first and most immediately that we believe the customer understands the more items in their store, including items produced by the national brands, the more profound improvement in what they're trying to do will be.

Speaker Change: Got it. That's helpful. And then you highlighted in the prepared remarks that in Q2 you demonstrated with your largest commercial customer the ability to carry a heavy load in a multi-signal future.

Riley McCormack: Thank you, George, and hello, everyone. I want to begin this call by reiterating the core trends of our strategy. When we get to the subsequent discussion of Q2, I encourage you to examine our progress with these core trends in mind. Doing so will help frame the accomplishments we achieve in the quarter and more importantly provide context as to where we're going from here. As our world becomes increasingly digital and companies progress through digital transformation journeys, digital marks maximizes the ways in which products and multi-media could digitally interact with the various systems that surround them.

Speaker Change: I know that you're limited with what you can discuss with this, but can you just discuss or maybe just, you know, from a high level, explain what you were referring to maybe with this particular statement.

Speaker Change: yeah I would point to the two developments that I that I I mean that fact is is powerful right and interesting but what's really important is the two developments that come from that fact

Riley McCormack: And interesting, but what's really important is the two developments that come from that fact. First and most immediately, we believe the customer understands that the more items in their store, including items produced by national brands, the more profound improvement in what they're trying to do will be. And secondly, they understand the value of our owning more of a technology stack on the Razor component, using more of Illuminate's capabilities to build out the points of detection. Outside of reiterating what I said in the follow-up, I said I couldn't provide any additional details except that I do want to stress two things.

Riley McCormack: We excel at the identification and authentication of physical goods that digital assets, often at massive scale, and often where other means of identification or authentication don't work well or don't work at all. Our focus is on converting this large total addressable marketed as a substantial free cash flow, that positioning ourselves to deliver high and long lasting top-line growth at world-class operating margins. This starts with our being easy to begin dealing business with and excellent guiding customers along their digital market journey and is aided by four key tailwinds we have been very intentional to create.

Speaker Change: that first and most immediately that we believe the customer understands the more items in their store including items produced by the national brands

Riley McCormack: And then secondly, they were saying the value of our owning more of a technology stack on the razor component on using more of eliminate capabilities to build up the points of detection. I can't provide any additional details except I do want to stress to think it's difficult to overstate the importance of these developments. These are important developments, and we look forward to being able to talk about it more recently. Understood.

Speaker Change: The more profound the improvement in what they're trying to do will be. And then secondly, they understand the value of our owning more of a technology stack on the Razer component, on using more of Illuminate's capabilities to build up the points of detection.

Speaker Change: Outside of reiterating what I said in the call, I said I can't provide any additional details, except I do want to stress two things. It's difficult to overstate the importance of these developments. These are important, important developments, and we look forward to being able to talk about it more soon.

Riley McCormack: It's difficult to overstate the importance of these developments. These are important, important developments, and we look forward to being able to talk about them more. Okay. And I just have one quick financial question for me.

Riley McCormack: One, our incredibly deep and wide notes allow us to offer differentiated products. In turn, our differentiated products enable us to create new markets and disrupt existing ones. Two, the need to identify and authenticate physical goods that digital assets is universal, meaning almost every entity in the world is a potential digital market customer. Additionally, because our technology enables us to identify and authenticate things or other solutions don't work well or don't work at all, our ecosystem consists of companies that incentivize to partner with us rather than posing a competitive risk.

Charles Beck: As you're looking at the operating expense growth for the balance of the year, I think, aside from the adjustments, total expenses grew 2% year over year, which is great. How should we think about any increased hiring or expenses coming into the model for the second half of the year? Thanks, guys. Yeah, Josh, you know, we don't necessarily give guidance very directly. I can just talk. We don't expect that we need to ramp up expenses significantly at all.

Joshua Reilly: And just one quick financial question for me. As you're looking at the operating expense growth for the balance of the year, I think, you know, aside from the adjustment to the growth, total expenses grew 2% year-over-year, which is great. How should we think about any increased hiring or expenses coming into the model for the second half of the year? Thanks, guys. Yeah, Josh, you know, we don't necessarily give guidance. When we do, actually I can just talk. We don't expect that we need to ramp up the expenses significantly at all, and quite frankly, generally expenses are a little bit higher in the first half of the year than they are in the second half of the year.

Speaker Change: understood and just one quick financial question for me as you're looking at the operating expense growth for the balance of the year I think

Riley McCormack: Three, there are many use cases that require companies to identify or authenticate their physical items of digital assets, and there are many ways we can configure our technology to achieve these goals. Therefore, our ability to productize new functionalities is open-ended. This means our already large channel will continue to grow as many of our launch new products for an opportunity unlocking functionality due to existing ones. Four, we engineer our products to be accretive, meaning the more product, the more products of customer buys, the more value each product delivers.

Speaker Change: You know, aside from the adjustment that grew total expenses grew 2% year over year, which is great. How should we think about any increased hiring or expenses coming into the model for the second half of the year? Thanks, guys.

Charles Beck: And quite frankly, generally, expenses are a little bit higher in the first half of the year than they are in the second half of the year, just given some of the year-end compliance and things that we have in Q1. So we wouldn't expect to see material growth in expenses. Now, obviously, at a much higher scale of revenue, there will be some additive expenses. But as I touched on in my prepared remarks, you know, this business, we believe, has tremendous operational leverage.

Speaker Change: Yeah, Josh, you know, we don't necessarily give guidance, but actually I can just talk. We don't expect that we need to ramp up expenses significantly at all, and quite frankly, generally, expenses are a little bit higher in the first half of the year than they are in the second half of the year, just given some of the year-end compliance and things that we have in Q1.

Charles Beck: Just given some of the year-end compliance, some things that we have in Q1, so we wouldn't expect to see material growth in expenses. Now, obviously, at a much higher scale of revenue, there will be some additive expenses. But, as I touched on in my prepared remarks, you know, this business, we believe that's tremendous operational leverage, and you can start to see that where we're able to grow revenue at 39% and our expenses are pretty low. So we can't say that the expenses won't grow, but they shouldn't have to grow at a significant amount, even to reach a much higher scale.

Speaker Change: So we wouldn't expect to see material

Speaker Change: growth and expenses. Now obviously at a much higher scale of revenue there will be some additive expenses but as I touched on in my prepared remarks

Charles Beck: And you can start to see that we're able to grow revenue by 39%, and our expenses were pretty low. So we can't say that the expenses won't grow, but they shouldn't have to grow by a significant amount even to reach a much higher scale. Awesome. Thanks, guys. Thanks, Josh.

Speaker Change: you know this business we believe has tremendous operational leverage and you can start to see that where we're able to grow revenue at 39% in our expenses were pretty low so we can't say that the expenses won't grow but they shouldn't have to grow it a significant amount even to reach a much higher scale

Riley McCormack: This positions us to harvest a low-hanging and highly profitable fruit of cross-cells and upsells for years to come Turning now to Q2, we make significant progress on multiple fronts highlighted by three developments like the other profound impact on the second half of this year and the end.

Operator: Awesome. Thanks, guys. Thanks, Josh. Once again, to ask a question, please press star one.

Speaker Change: Awesome. Thanks, guys.

Operator: Once again, to ask a question, please press star 1. Our next question is from Jeff Van Ree with Crate. Great, thanks. A couple for me, guys.

Riley McCormack: Before providing these important updates, I want to reiterate two points. First, because we are early in the journey to our ultimate and massive scale, our net annual current revenue growth can be lengthy when looked at at a quarterly basis. As a reminder, quarterly net AR growth is the output of gross addition to ARR minus churn. In Q2, churn almost entirely offset our gross ad. A significant driver of this dynamic was a transition to our preferred partner engagement model to our new center of expertise program.

Josh: Thanks, Josh.

Jeff Van Ree: Our next question is from Jeff Van Ree with Great Helm. Great. Thanks. A couple for me, guys.

Operator: Maybe first, just can you quantify on the ARR, what was the actual dollar impact of that turn to customers? Yeah, so Jeff, we're not providing any other metrics around ARR at this point. Any ARR is really our true north of the business. Providing other metrics at this point in time, just given our scale, could be misleading. And therefore, you know, we're not going to provide them at this juncture. But we can't wait to be at the scale where we're providing more of those metrics like gross ads and churn and things like that. But at this point, we're not prepared to do that. Okay, maybe I'll try the multi-year validation deal that you had.

Speaker Change: Once again, to ask a question, please press star 1.

Speaker Change: Our next question is from Jeff Van Ree with Crate-Helm.

Jeff Van Ree: Maybe first, just can you quantify on the ARR, what was the actual dollar impact of that turn to customer? Yeah, so Jeff, we're not providing any other metrics around ARR at this point. Indian ARR is really our true north as a business, providing other metrics at this point, and Tom, just given our scale, could be misleading, and therefore, you know, we're not going to provide them with this juncture. You know, we can't wait to be at the scale; we're providing more of those metrics like gross ads and turn and things like that, but at this point, we're not prepared to do that.

Speaker Change: Great, thanks. A couple for me guys. Maybe first, just can you quantify on the ARR what was the actual dollar impact of that turned customer?

Speaker Change: Yeah, so Jeff, we're not providing any other metrics around ARR at this point. Indian ARR is really our true north of the business. Providing other metrics at this point in time, just given our scale, could be misleading, and therefore, you know, we're not going to provide them at this juncture.

Riley McCormack: While this transition results in less upfront ARR, it leads to two significant benefits that you pay off for years, greater ARR upside over time and more focused, repeatable, scalable and profitable growth. Two things to note on this transition and this impact in our quarterly net ARR results both in Q2 and beyond. First, even with the headwind of lower upfront ARR, we slightly exceeded the Q2 gross ad target set in our 2024 budget.

Speaker Change: We can't wait to be at the scale where we're providing more of those metrics like gross ads and churn and things like that, but at this point we're not prepared to do that.

Riley McCormack: Can you talk more about that? You said it was a COE source deal. What's the size of the deal?

Jeff Van Ree: Okay.

Riley McCormack: Maybe I'll try on the multi-year Validate deal that you had. Can you talk more about that? You said it was a COE source deal. What's the size of the deal? What's the use case? Just a little more clarity there. Yeah. It's around, it's a lot of six gigahertz per year. ARR. It's a producer of products who has tried other ways to authenticate and stop both tech as well as the version of their products and realize that we have a pretty good solution. So there's nothing, you know, well, I guess there is actually. This is a good COE partner.

Speaker Change: Okay, maybe I'll try on the multi-year validate deal that you had. Can you talk more about that? You said it was a COE source deal. What's the size of the deal? What's the use case? Just a little more clarity there.

Riley McCormack: Second, as at the end of Q2, the partners that remain in our historic partner program are not candidates to transition to our COE program. On our February fall, we discuss the reasons why we believe so strongly in the COE program and in the June press release, we announce the program's funding numbers.

Riley McCormack: What's the use case? Just a little more clarity there. Yeah, it's around, it's a low six figures per year, ARR, it's a producer of products who has tried other ways to authenticate and stop both checked, as well as their version of their products and realized that we have a pretty good solution. So there's nothing, you know, well, I guess there is actually, I mean, this COE partner is a valued customer of theirs, right?

Speaker Change: Yeah, it's around, it's below six figures per year, ARR, it's a...

Riley McCormack: Over the past few months, we've become even more convinced of the power of this new program and beyond the positive impact that it's already having in our sales pipeline, I am thrilled to announce we close our first COE source contract during the quarter, a multi-year digital market value deal. Second, and as evidenced by our historic results, while this emptiness will lead to quarters like Q2, we're quarterly net ARR growth is below trend. There will also lead to quarters where quarterly growth is significantly above trend.

Speaker Change: producer of products who has tried other ways to authenticate and stop both theft as well as diversion of their products and realized that we have a pretty good solution.

Speaker Change: So there's nothing, you know, well I guess there is actually, I mean, this is, this COE partner, it's a valued customer of theirs, right, so it's always great to start with a COE partner's valued customer. It shows that, you know, that relationship's off to a good start.

Riley McCormack: It's a valued customer there, right? So it's always great to start with a COE partner as to how you customer. It shows that relationship is up to a good start because they're putting us in front of their customers. We got a performance. We're not just trying to solve the customer's problem; we're trying to make our partners look good and help them get more comfort and essence and really build that partnership. But there's nothing I would say unusual, or we love all of our deals. It's not nothing. It wasn't an exciting deal. There's nothing unusual. It's just our first one.

Riley McCormack: So it's always great to start with a COE partner's valued customer. It shows that, you know, that relationship's off to a good start. You know, they're putting us in front of their customers. We've got to perform.

Riley McCormack: When we say we expect our business to be want to be until we reach a larger scale, we use that term as it is truly intended, not as the euphemism for week. This is why we prefer to measure our ARR over one year and three year time horizons, as we do with the quarterly earnings snapshot George referenced in his opening remarks. Focusing on the forest, not the trees, provides a better measure of this business is of our business is true growth. Moreover, our focus extends beyond any single quarter, and as I mentioned at the beginning of this call, is centered on converting our large total addressable markets into substantial free cash flow.

Riley McCormack: We're not just trying to solve the customer's problem; we're trying to make our partners look good and help them get more comfortable with us and really build that partnership. But there's nothing, I would say, unusual or... We love all of our deals, right? So it wasn't an exciting deal, but there's nothing unusual about it.

Speaker Change: They're putting us in front of their customers. We've got to perform. We're not just trying to solve the customer's problem, we're trying to make our partners look good and help them get more comfort in us and really build that partnership. But there's nothing, I would say, unusual or...

Riley McCormack: It's just that our first one came through the COE program, which is a pretty quick turnaround. We launched a partnership with Q2 and signed our first partner source deal with this inquirer. Yeah, got it. That's helpful. And then, I guess just lastly, that relates to the commercial customer that you referenced. What happened?

Speaker Change: We love all of our deals, right, so nothing was an exciting deal, but there's nothing unusual about it. It's just that our first one, it came through the COE program, which is a pretty quick turnaround. We launched a part in Q2 and signed our first partner source deal in the same quarter.

Riley McCormack: It came through the COE program, which is a pretty quick turnaround. We launched a parking Q2 and signed our first partner source deal in the same. .

Riley McCormack: I mean, I know you can't get into the specifics of that account and kind of what they're doing with your product, but I mean, clearly, they've had your product in hand for a long, long time, they've looked at it, and it seems highly intuitive that the more product that's marked, the more effective your platform is. And I guess just my first reaction to reading that or hearing that was what took so long that they're finally now just getting to that realization.

Speaker Change: Yep, got it, that's helpful. And then I guess just lastly that relates to the commercial customer that you referenced. What happened, I mean, I know you can't get into specifics,

Riley McCormack: To that end, I want to use the rest of this call to update you on key developments in two of our ecosystem-driven opportunities, and preview a new market opportunity that presents a can as large as, if not larger than, any other opportunity we are pursuing.

Speaker Change: of that account and kind of what they're doing with your product.

Speaker Change: I mean, clearly they've had your product in hand for a long, long time, they've looked at it, and it seems highly intuitive that the more product that's marked, the more effective your platform is. And I guess just my first reaction to reading that or hearing that was, what took so long that they're finally now just getting that realization?

Riley McCormack: As a reminder, review our business is having three pillars of shareholder value. The first color is our longstanding relationship with the world's central banks. Beyond the meaningful cash flow, this 26 year relationship provides, our work with central banks also acts as a source of intellectual property generation for our commercial business, gives us invaluable credibility as a trustworthy supplier, and demonstrates our ability to scale. The second color comprises of our saps and past products have followed a more traditional software-go-to-market model in areas such as deal size, sale cycle, and lock-up ecosystem dependencies, of the United States.

Riley McCormack: Yeah, I get you, you know, if you're looking at that from the original 2019 deal, I would benchmark it versus the deal we signed a couple years ago, right, that's a different use case, it's next-gen in-store operations. And I know we talked a little bit about this on our fireside chat, you know, it's ultimately up to the customer.

Speaker Change: Yeah, if you're looking at that from the original 2019 deal, I would benchmark it versus the deal we signed a couple years ago, right? That's a different use case. It's next-gen in-store operations.

Speaker Change: And I know we talked a little bit about this on our fireside chat, you know, it's it's ultimately

Riley McCormack: When we're licensing our platform, right, it's up to the customer to really decide how best they want to build it. That was that second... key development, Jeff, I was referencing here, their understanding that the more that they use the capabilities to eliminate waste is a huge unlock. And then, you know, the

Riley McCormack: I touched briefly on the progress in our COE program earlier. For additional important updates from Q2 related to this pillar, I again encourage everyone to review our quarterly earnings snapshot. The third color consists of our ecosystem driven opportunities. These opportunities encompass industry-wide or country-wide initiatives that, once in motion, have powerful flywheels that you drive quick, broad, and sticky adoption, but also have ecosystem dependencies that make timing unpredictable as it is predominantly outside of our direct control.

Speaker Change: up to the customer. When we're licensing our platform, right, it's up to the customer to really decide how best they want to build it. That was that second...

Riley McCormack: That was the second key development; Jeff Howard's referencing here is their understanding that the more they use the capabilities of the eliminate, it is a huge amount. If you go back to the 2019 deal, our focus across this company is on solving the problems front of mind for our customers. And when you look at the retail industry, there's far and away two things on the front of their mind. And loss production, especially post-COVID, which is in general, but it's getting worse. You're seeing a big retail is taking on self-checkup, or putting more stuff behind locks.

Speaker Change: Key development, Jeff, I was referencing here is their understanding that the more that they use Capabilities to eliminate is a is a huge unlock and then you know the

Riley McCormack: If you go back to the 2019 deal... Our focus across this company is on solving the problems front of mind for our customers. And when you look at the retail industry, there are far and away two things on the front of their minds. Loss prevention, especially post-COVID, but just it's in general, but it's getting worse. You're seeing, you know, big retailers taking out self-checkout, right, or putting more stuff behind locks. That is becoming real in the retail space.

Jeff: If you go back to the 2019 deal,

Jeff: Thank you. Bye-bye.

Speaker Change: Our focus across this company is on solving the problems front and line for our customers.

Riley McCormack: It really is, skyrocketed to one of their top concerns. And the other one is next-generation operations, right? The retail industry is, for the most part, you know, they've had improvements, but it's kind of the same process for the last couple of decades.

Riley McCormack: Before I provide an update on our progress in these two of these opportunities, namely Digimarc Retail Experience and Digimarc Recycle, I again want to point everyone to our quarterly earnings snapshot for an update on our third ecosystem driven opportunity, Digimarc Validate Media, which we continue to believe can deliver the safer, fair, and more authentic Internet we all deserve.

Speaker Change: And when you look at the retail industry, there's far and away two things on the front of their mind.

Speaker Change: loss prevention, especially post-COVID, but just it's in general, but it's getting worse. You're seeing, you know, big retailers taking out self-checkout, right? Or putting more stuff behind locks. That is becoming real at the retail space. It really is.

Riley McCormack: That is becoming real at the retail space. It's really a skyrocketing one of the top concerns. And the other one is Next Generation Operations. The retail industry is, for the most part, they had improvements, but it's kind of the same process for the last couple of decades. If we can build solutions that can address the industry's going versus where they are, that's a huge amount. If our solutions can not only add value to their existing processes, but also future proofing for the future ones, Jeff, those are wonderful conversations to be having with these people. Yeah, got it.

Riley McCormack: Turning to the update on Digimarc Retail Experience, recall this offering is a Razer-Razer Blade product. The Razer involves licensing our Digimarc Illuminate Classroom to retailers, the user's capabilities to build out the points of detection required to enable next-generation install operations. The Razer blades are provided by our licensing Digimarc Retail Experience to the brands whose products are carried by that retailer, including the retailer's private label brilliance, allowing their products to interact with these points of detection.

Speaker Change: skyrocketed to one of their top concerns. And the other one is next-generation operations. Right? The retail industry is, for the most part, you know, they've had improvements, but it's kind of the same process for the last couple decades.

Riley McCormack: If we can build solutions that can address where the industry's going versus where they are, it's a huge unlock. If our solutions can not only add value to their existing processes but also future-proof them for future ones, Jeff, those are wonderful conversations to be having with these people. Yeah, got it. And maybe, this will be my last post on gift cards, because that's very interesting. You know, see me? I don't know if I came out of nowhere, but certainly the materiality of it, the way you're describing it, and the pace at which it showed up.

Speaker Change: If we can build solutions that can address where the industry is going versus where they are, it's a huge unlock. If our solutions can not only add value to their existing processes, but also future-proof them for the future ones, Jeff, those are wonderful conversations to be having with these people.

Riley McCormack: You talked about all these attack vectors on gift cards; can you just give us a 20 second education on a little more of the opportunity around gift cards? And then, I don't know any sense of timing.

Jeff Van Ree: And maybe sorry, this will be my last on the gift cards, because that's very interesting. I don't know if I came out of nowhere, but certainly showed up quickly. The materiality of it, the way you're describing it, and the pace at which it showed up. You talked about all these attack vectors on gift cards. Can you just give us a 22nd education on a little more of the opportunity around gift cards? And then, I don't know, any sense on timing. Yeah, I realize it's just a swag, but how quickly can these result in ARR? So, in terms of the attacks, there's multiple vectors of attacks.

Riley McCormack: As stated on a prior call, we believe the can of licensing our platform to enable next-generation install operations is well into the nine figures of ARR. We believe the can of Digimarc Retail Experience is multiple larger still. But beyond these incredibly large cans, Digimarc Retail Experience is also an easy way for these national brands to begin their Digimarc journey on next. Once their products are digitized, we will have the opportunity to be excellent at adding these brands along their journey of solving additional problems through the adoption of other Digimarc solutions.

Speaker Change: Yep.

Jeff: Got it. And maybe, sorry, this will be my last, on the gift cards, because that's very interesting. I don't know if I came out of nowhere, but it certainly showed up quickly. The materiality of it, the way you're describing it, and the pace at which it showed up. You talked about all these attack vectors on gift cards. Can you just give us a 20-second education on a little more of the opportunity around gift cards? And then, I don't know, any sense on timing? I realize it's just a swag, but how quickly can these result in ARR?

Riley McCormack: Yeah, I realize it's just a swag, but how quickly can these result in ARR? So in terms of the attacks, there are multiple vectors of attacks. They roll into a couple of big top-level ones, right? One is trading, so you get a gift card that you believe has money on it, but the money's already been stolen. And the second one is social engineering. Those are the two main vectors, but there are a bunch of other vectors, and there are a bunch of sub-attacks within those vectors. But it's basically either buying a gift card that you should have had value on it, and it doesn't when you get it, or else social engineering and attacking.

Riley McCormack: Moreover, the more national brand items digitized using our technology, the easier it is for additional retailers to license our platform to build out their own points of detection, while in parallel adopting Digimarc Retail Experience for their private label items. We expect most retailers will use our platform to build points of detection that utilize other means of product identification beyond the 1D, 2D, and digital watermarking signal that our platform supports. In Q2, we provided our largest commercial customer with the monsterable proof that our technology can carry a very heavy load in this multi-signal future, resulting in two important developments that give us confidence this flywheel is likely to start spinning.

Speaker Change: Bye. Show out.

Riley McCormack: They roll into a couple of big high top level ones. Right, one is straighting, so getting a gift card that you believe has money on it, but the money's already stolen in the second one of social engineering. Those are the two main vectors, but there's a bunch of other vectors, and there's a bunch of sub-attacks within those vectors. But it's basically they're buying a gift card that you should have that value on it, and it doesn't when you get it or else social engineering. And again, you know, most of these social engineering attacks, so after the elder lady or, you know, so those are the two big problems, become an issue, not just to the industries at all.

Speaker Change: So in terms of the attacks, there's multiple vectors of attacks. They roll into a couple of big, top-level ones, right? One is trading, so getting a gift card that you believe has money on it, but the money's already been stolen. And the second one is social engineering. Those are the two main vectors, but there's...

Speaker Change: A bunch of other vectors and there's a bunch of sub attacks within those vectors, but it's basically they're buying a gift card that you

Riley McCormack: Again, most of these social engineering attacks go after the elderly. So those are the two big problems that have become an issue, not just for the industry as a whole. The only thing is that this gift card industry is massive globally in terms of the total amount of money that is stored on these cards, and it's growing at an incredibly high rate. The only thing growing faster is the attacks, because this industry has tried a lot of older analog-type technologies that have just proven not to be up for the challenge of a really dedicated group of thieves because of the size of the pot of gold at the end of the rainbow.

Speaker Change: should have had value on it, and it doesn't when you get it, or else social engineering and attacking, again, you know, most of these social engineering attacks go after the elderly or, you know, so those are the two big problems that become an issue, not just to the industry as a whole. The only thing, this...

Riley McCormack: And the only thing this gift card industry is massive globally in terms of the total amount of money that it started on its parts, and it's growing it in quite a big large. They're really growing faster with the attacks because this industry has tried a lot of older analog type technologies that you just proved and have to be up for the challenge of a really dedicated group of thieves because of the size of the ability at the end of the rainbow. So, you know, it's tough to get into exactly how we're solving all the problems. This is the tough.

Riley McCormack: First, and most immediately, we believe this customer now understands that the more items in their stores that are digitized with our technology, including items produced by national brands, the more profoundly improvement to their install operations will be. Second, we believe this customer also now understands the value of Digimarc delivering a greater amount of the software capabilities tiring their points of detection. They should ultimately increase the size and target market of the Razer component of the flywheel, not only with our initial customer, but with subsequent customers as well.

Speaker Change: I guess our industry is massive.

Speaker Change: Globally, in terms of the total amount of money that is stored on these cars, and it's growing at an incredibly large rate. The only thing growing faster is the tax, because this industry has tried a lot of...

Speaker Change: older analog type technologies that you're just proven not to be up for the challenge of a really dedicated group of thieves because of the size of the

Riley McCormack: So it's tough to get into exactly how we're solving all the problems. This is the hard – again, we identify and authenticate things. Identify, we love to talk about it. Authenticating, we don't want to get too far into what we're doing, but we have multiple different solutions, multiple different implementations, as I mentioned. And then it's for timing. We don't know what we don't know.

Speaker Change: have a go at the end of the rainbow.

Speaker Change: so

Speaker Change: you know it's tough to get into exactly how we're solving all the problems this is the tough, again we identify and authenticate things. Identify, we love to talk about it, authenticating.

Riley McCormack: Again, we identify and authenticate them. Identify; we love to talk about it: authenticating. You know, part of, we don't want to get too far into what we're doing, but we have multiple different solutions, multiple different implementations, as I mentioned. And then it's for the kind of figure, but there's, you know, we don't know what we don't know. As I mentioned, you know, the pace that this is evolving and the engagement is unlike anything I've ever seen; it is remarkable.

Riley McCormack: While I cannot provide any additional details at this time, I want to emphasize two key points. First, it is difficult to overstate the importance Performance. Second, we expect them look forward to being able to share more information soon.

Speaker Change: We don't want to get too far into what we're doing, but we have multiple different solutions, multiple different implementations, as I mentioned. And then as for the timing, stay tuned. I mean, there's, you know, we don't know what we don't know.

Riley McCormack: Turning that into the micropsycho, Q2 saw us make important progress on this ecosystem given opportunity as well. On our February earnings call, we discussed a new go-to-market avenue for this revolutionary product in which we would work with a qualified partner who would lead a regional or country-wide roll-up. On our May call, I mentioned we were in conversations with multiple parties regarding this new path. Since then, the number of parties with whom we are having conversations has increased, as has a number of countries in which we are having these conversations.

Riley McCormack: As I mentioned, you know, the pace. I hope this is evolving, and the engagement is unlike anything I've ever seen; it is remarkable. The goal of this call was to introduce the idea, just so you all have awareness of it, because, like I said at the beginning, our confidence that we have a solution and the materiality to our business if we're right, stay tuned. Fair enough.

Speaker Change: As I mentioned, you know, the pace...

Speaker Change: that this is evolving and the engagement is unlike anything I've ever seen. It is remarkable. The goal on this call was to introduce the idea just so you all have awareness of it, because like I said at the beginning, our confidence we have a solution and the materiality to our business if we are right. Stay tuned.

Jeff Van Ree: The goal on this fall was to introduce the idea, just so you all have awareness of it because, like I said at the beginning, our competency of a solution and the materiality, our business of our right. Thank you.

Jeff Bernstein: Our next question comes from Jeff Bernstein with Silver Bernstein. Hi guys, thanks for letting me ask the question. I just want to get an update on the California legislation and whether you think that might actually get voted through, I guess they're their Senate this summer. And then I guess there's some different legislation that's starting to percolate for the US government as well, you know, relating to AI defense. Yeah, so I may be 30 to 11. I mean, we're just absolutely thrilled to be part of this conversation, not only because we can make a real impact to a really pressing problem, but also because it speaks to our recognized leadership in digital water, right?

Riley McCormack: Moreover, thanks to a deeply valued ecosystem participant who believes as strongly as we do with both the environmental and economic ROI of our solution, we expect to soon receive introductions to multiple large and powerful entities capable of acting as our partners in additional countries. While we expect these will be elongated sales cycles, we are pleased with the progress and believe that the opening of our first country should accelerate our conversations, both existing and future.

Speaker Change: Fair enough, thank you.

Operator: Thank you. Our next question comes from Jeff Bernstein with Silverburn. Hi guys, thanks for letting me ask the question.

Speaker Change: Thank you, Jeff.

Speaker Change: Our next question comes from Jeff Bernstein with Silverburn Bernstein.

Jeffrey Bernstein: I just wanted to get an update on the California legislation and whether you think that might actually get voted through, I guess, their Senate this summer. And then I guess there's some different legislation that's starting to percolate through the U.S. government as well, you know, relating to AI and deep learning. Yeah, so on AB 3211, I mean, we're just absolutely thrilled to be part of this conversation, not only because we can make a real impact on a really pressing problem but also because it just speaks to our recognized leadership in digital watermarking, right?

Jeff Bernstein: I just wanted to get an update on the California legislation and whether you think that might actually get voted through, I guess, their Senate.

Speaker Change: this summer. And then I guess there's some different legislation that's starting to percolate for the U.S. government as well, you know, relating to A.I. and deepfakes.

Riley McCormack: To that end, the first qualified partner between the entered conversations has told us they expect to be ready to sign the deal for the initial roll-out of Digimarc cycle in a European country in the second half of this year.

Speaker Change: Yeah, so on AB 3211, I mean, we're just absolutely thrilled to be part of this conversation.

Riley McCormack: Finally, in breaking with our practice of not discussing new products until we sign the market customer, I want to close my prepared remarks today by talking about a new market opportunity because there are confidence in the value of our solution and the materiality to our business if we are correct. For over a quarter of a century, we have worked at the world's central banks to protect our currencies. However, one of the fastest growing in those conditions to pass on a class of currency isn't against the banknotes issued by federal governments, but the currency issued by brands and retailers, gift cards.

Jeffrey Bernstein: It probably goes without saying, but I'll say it more widely in favor of 3211, not only because we know that the implementation and the solutions, and it's not just digital watermarking, right? This is a very comprehensive bill. 3211 will work, and the technology behind it, which is a lot of digital watermarking-based stuff.

Speaker Change: Not only because...

Speaker Change: We can make a real impact to a really pressing problem, but also because it speaks to our recognized leadership in digital watermarking, right? They approached us as the experts.

Riley McCormack: They approached us to see experts, and probably goes without saying, but I'll say it reliably in favor. Not only because we know that the implementation and the solutions, and it's not just digital water, right? This is a very comprehensive bill. 32 of them will work. And the technology behind it, which is a lot of digital water, marketing based up, well, of course, you know, that we know will work.

Speaker Change: and probably goes without saying, but I'll say it, we're widely in favor, not only because we know that the implementation of the solutions, and it's not just digital watermarking, this is a very comprehensive bill, 3211 will work.

Riley McCormack: Well, of course, you know, that we know will work. Trying to predict how legislation moves through any processes is probably, you know, beyond my ability to do. I can tell you right now this is an update. It's currently in the Senate Appropriations Committee in what's called a suspense file, which is where I forget the hurdle, but any bill that has above a certain very low bar for financial impact gets put in a suspense file.

Speaker Change: And the technology behind it, which is a lot of digital watermarking based up, well, of course, you know, that we know will work.

Riley McCormack: As I mentioned in the past, we expect our most exciting opportunities to come from prospects experiencing problems that can be uniquely solved by our ability to identify and authenticate physical and digital items where other means of identification and authentication don't work well or don't work at all. It has been incumbent upon us to determine A, if there is a sizeable and repeatable business problem, that B, additional prospects beyond the first have an urgency to solve, where C, we can provide a solution of enduring and differentiated value that B presents us a path that fast and profitable scale.

Riley McCormack: Trying to predict how legislation moves through any processes is probably, you know, beyond the ability to do. I can tell you right now, this is an update. It's currently in the Senate Appropriations Committee and the public assistance style, which is where I forget the hurdle, but any bill that has above a certain very low bar for financial impact gets put into the suspense file. And we're waiting for progress out of that. We provided direct feedback on the content we've testified on this. And we're just as anxious awaiting progress as you are.

Speaker Change: trying to predict

Speaker Change: how legislation moves through any processes is probably

Speaker Change: I can tell you right now this is an update. It's currently in the Senate Appropriations Committee in what's called a suspense file, which is where, I forget the hurdle, but any bill that has above a certain very low bar for financial impact gets put in a suspense file, and we're waiting for progress out of that. We provided direct feedback on the content. We've testified on this.

Riley McCormack: And we're waiting for progress on that. We provided direct feedback on the content. We've testified on this, and we're just as anxious awaiting progress as you are, Josh. Doctor, and then at the federal level, are they also kind of going the same path in terms of digital watermarking and, you know, other technologies that will be in there? Yeah, at the federal level, there are a lot of different bills talking about this.

Riley McCormack: This is exactly how our opportunity and gift cards has developed. Gift cards face multiple attack vectors and the cost of these attacks of monetary and reputation are real in of getting worse. Moreover, existing solutions are expensive and effective and it is becoming clear to the industry both ecosystem partners and end customers that we have a significant role to play. We believe we can provide a solution today that addresses some of the most common attack vectors, providing a significant increase in efficacy while actually reducing the current dollar materials costs, delivering a meaningful and attractive ROI.

Riley McCormack: That combined with the expected ease of implementation should offer rapid scaling post initial adoption. Moreover, while no material dependencies prevent any single gift card issuer from independently adopting our solution, many industry participants are aware of our work and are interested in finding a widely adoptable solution that the large and growing level of loss is leading to grave concerns in the industry. Thus, our opportunity and the gift card industry shares the most attractive attributes of our ecosystem-driven opportunities, namely the likelihood of rapid scaling and incredible stickiness once scaled without the multi-stakeholder dependencies that characterize these opportunities as ecosystem-driven.

Speaker Change: and we're just as anxious awaiting progress as you are, Jeff.

Riley McCormack: Doctor, and then on the federal level, are they also kind of going to the same path in terms of digital watermarking and other technologies that will be in there? Yeah, the federal level. There's a lot of different bills talking about this. You know, if you recall, we were at the AI Insight Forums. We were also a founding member of the NIST, which is a National Institute for Standards and Technology. We're a founding member of the AI Initiative Group. So we're supporting at the federal level as well. You know, what's remarkable is how quickly to be 30 to 11 is moving.

Speaker Change: Doctor and then and then on the federal level are they also kind of going to the same path in terms of digital watermarking and and you know other technologies that that'll be in there?

Speaker Change: Yeah, at the federal level there's a lot of different bills talking about this.

Riley McCormack: You know, if you recall, we were at the AI Insight Forums. We were also a founding member of NIST, which is a... at the National Institute for Standards and Technology. We're a founding member of their AI initiatives group. So we're supporting AI at the federal level as well. Remarkable is how quickly AB 3211 is moving.

Speaker Change: If you recall, we were at the AI Insight Forums. We were also a founding member of the NIST, which is a...

Speaker Change: National Institute for Standards and Technology. We're a founding member of their AI initiatives group. So we're supporting at the federal level as well.

Speaker Change: remarkable is how quickly AB 3211 is moving. California has a history of leading, but not just the country, but the world in big

Riley McCormack: California has a history of leading, but not just the country, but the world in big... big, important things. We love all of them. And again, this is not just a problem facing the U.S.; this is a global problem. So we're supportive, and we're trying to do all we can to help educate governments and regulatory bodies worldwide because this is a big problem. And I think the outcome of this is wonderful. We believe this can truly deliver the safer, fairer, more authentic Internet we've all deserved since the Internet was created. It'll be great to get the 15th largest country signed up, so I'm looking forward to that.

Riley McCormack: California has a history of leading, but not just the country, but the world in big, big, important things. So, you know, we love all of them. And again, you know, this is not just a problem facing the US, right? This is a global problem. So we're supportive, and we're trying to do all we can to help educate governments and regulatory bodies globally. Because this is a big problem. And I think the outcome of this is wonderful. I mean, you know, we believe this can truly deliver the safer, fairer, and more rational, like an authentic internet revolve deserved since the internet was created.

Speaker Change: big important things so

Speaker Change: You know we love all and and again, you know, this is not just a problem facing the US, right? This is a global problem. So we're supportive and we're trying to do all we can to help educate

Speaker Change: governments and regulatory bodies globally, because this is a big problem. And I think the outcome of this is wonderful. We believe this can truly deliver the safer, fairer, more authenticate, authentic Internet we've all deserved since the Internet was created.

Riley McCormack: We are likely to launch our gift card offering with a few different implementation architectures that we believe yield a US market camera of 900 million to 1.5 billion of ARR. While we are starting in the US because this is where our initial prospect and partner engagements have occurred, there is nothing that we or the industry see that prevents us from being a global solution. In fact, as stated earlier, our ability to act as a universal and global solution seems to be one of the things about which the industry is most exciting.

Riley McCormack: It will be great to get the 15th largest country signed up, so I'm looking forward to that. Thank you.

Speaker Change: it'll be great to get the 15th largest country signed up so looking forward to that.

Joe: Take care, Joe.

Riley McCormack: Yeah. Thank you very much. Thank you. There are no further questions at this time, and I would like to turn the call back to Riley McCormack. Well, thank you, everybody, for joining us this afternoon. I hope you have a great rest of your day. Thank you. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.

Riley McCormack: There are no further questions at this time, and I would like to call back to Riley McCormack for closing remarks. Thank you, everybody, for joining us this afternoon. I hope you have a great rest of your day. Thank you.

Joe: Thank you. There are no further questions at this time. And I would like to turn the call back to Riley McCormack for closing remarks.

Riley McCormack: Although we haven't yet conducted a detailed analysis to quantify the global tan, it will be significantly larger than that of the US alone. Moreover, as we continue to build additional features into our solution to address more attack vectors, we believe we should build a capture of share of that added value, providing further upside to our tan. While the excitement and urgency shown by the industry has been remarkable, there is still more to learn as we advance this work, and I want to caution that we don't know what we don't know.

Riley McCormack: Well, thank you everybody for joining us this afternoon. I hope you have a great rest of your day.

Operator: This concludes today's conference. Thank you for your participation. You may disconnect real lines at this time.

Speaker Change: Thank you. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.

Speaker Change: [inaudible]

Riley McCormack: However, the list of things we don't know was shrinking rapidly, giving us comfort in discussing this opportunity today. In addition to our obvious excitement about this opportunity stand alone, it also ductails nicely with other retail and lost prevention solutions we are progressing, including a solution addressing the fact of prepared food, for which we signed an initial deal with the regional grocer in Q2. I focus my comments today on the gift card opportunity because of the urgency with which the industry is engaging, as well as the massive tan it represents.

Riley McCormack: However, it is important to note that the potential to offer a suite of value with freedom products leveraging the same technology and sold with the same lost prevention buyers is exciting, as it provides us another avenue to be easy to begin doing business with, and excellent guiding customers along with our digital opportunity.

Riley McCormack: Finally, we will not in immediate focus. We believe there are future synergies that can be unlocked between our retail lost prevention offerings and digital retail experience. As retail lost prevention and retail operations are closely intertwined, we will keep you updated as things to rest.

Charles Beck: I will now turn the call over to Charles to discuss our financial results. Thank you, Riley, and hello everyone. Financial highlights on a year-to-year basis for the second quarter included. Ending error increased 44%, commercial subscription revenue increased 39%, subscription gross profit margin was 89%, a 5%, percentage point improvement, total expenses only increased 2%, and non-gap net loss decreased 14%. We continue to focus on delivering improvement in these financial metrics as their critical levers in reaching positive free cash flow.

Charles Beck: Ending error increased 44%, from 16.7 million at the end of June last year to 23.9 million at the end of June this year. The year-to-year increase in error are largely reflects the impact of new customer contracts and several important customer upsells partially offset by customer turn. Total revenue for the quarter was 10.4 million and increased at 1.6 million or 19% from 8.7 million in due to last year, reflecting strong growth and subscription revenue.

Charles Beck: Subscription revenue which accounted for 61% of total revenue for the quarter grew 36% from 4.7 million to 6.4 million. The increase reflects subscription revenue recognized on new customer Brooks. Commercial subscript, rather, grew at a higher rate of 39%. Service revenue decreased 1%, from 4.1 million to 4 million, reflecting slightly lower commercial services. Subscription gross profit margin improved from 84% in Q2 last year, 89% in Q2 this year, representing a 5% percentage point improvement.

Charles Beck: The significant increase year-over-year reflects both the strong growth in subscription revenue, and a favorable mix in subscription revenue to our new products. Service gross profit margin improved from 51% in Q2 last year to 58% in Q2 this year, reflecting a favorable change in labor mix. We expect to generate mid 50% service gross margins on an online basis with some fluctuation quarter to quarter. Operating expenses for the quarter were 16.8 million, compared to 16.1 million in Q2 last year, an increase of 4%.

Charles Beck: Roughly half of the increase was due to lower cost being allocated from operating expenses to cost of revenue this quarter due to lower building services. Total expenses, which exclude the impacted allocations, only increased 2% year-over-year. Comparing this number to the 39% growth we delivered in the social subscription revenue shows the operating leverage we've been focused on building into our business. To continue driving this considerable operating leverage, we're focusing on maximizing a productivity and efficiency as an organization, including better leveraging the capability of tools like Gen AI to minimize the impact of rising labor and other costs.

Charles Beck: Non-gap operating expenses, which exclude non-cash and non-occurring items, were 14.9 million in Q2 last year. Again, roughly half of this cost was due to lower cost being allocated from operating expenses to cost of revenue this quarter because of lower building expenses. Net loss per share for the quarter of 43 cents versus 53 cents in Q2 last year. Non-gap net loss per share was also considered very lower for the quarter at 23 cents versus 29 cents in Q2 last year.

Charles Beck: We ended the quarter with 41.5 million in cash and short-term investments. Pre-cash flow using to a 6.9 million for the quarter compared to 7.9 million in Q2 last year. Given the cash flow is complex rate quarter to quarter, depending on the timing of receipts and payables, we continue to believe that a good proxy for a normalized level of pre-cash flow is using non-gap loss plus capital expenditures. While cash burn in the first half of 2024 was above this proxy, we expect the unfavorable fluctuations on timing of receipts and payables to averse in the second half, leading to full-year cash flow being generally in line with this proxy and hence pre-cash flow in the second half to be much better than the first.

Charles Beck: For further discussion of our financial results and recent prospects for a business, please share a full and ten Q that will be filed with the SEC.

Riley McCormack: I'll now turn the call back over to Rally for final remarks. Thanks, Charles. In Q2, we made significant progress on multiple fronts.

Riley McCormack: Highlighted by meaningful development in two of our ecosystem-driven opportunities and the rapid progression of an attractive new market opportunity in protecting gift cards from the ever-increasing threats they face. The developments in the ecosystem-driven opportunities give us confidence that we are likely on the precipice of getting these two flywheel spinning. The rapid progression of our opportunity and gift cards is standalone exciting, and can also serve as a cornerstone for a broader suite of offerings that help retailers combat one of their most pressing business challenges, the ever-precising prevalence and cost of strength.

Riley McCormack: While we continue to expect our business to be one day until we reach a larger scale, the progress we made in Q2 further demonstrates that as a result of our laser-like focus on the execution of our strategy and a core kind of theorem, we are not only on track to unlock the massive cams in which we are focused today, but also that new cams can rapidly develop. We are positioning ourselves to convert our large total addressable markets into substantial free cash roll by delivering high and long lasting growth at world-class operating margins. Our progress in Q2 gives us even greater confidence in our ability to achieve this goal.

Operator: Operator will now come to the call for questions. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 under telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset who are pressing the star keys. One moment please will we pull for questions. Thank you.

Joshua Reilly: Our first question comes from Joshua Riley with Needle. All right. Great.

Riley McCormack: Thanks for taking my questions and a nice job on developing some of these products opportunity here in the last couple quarters. Maybe just starting off on net new ARR. Can you just give us some additional details on maybe what type of customer turned in the quarter. Did you consider them courted the business and maybe how the center of expertise program for partners impacted net new ARR in the quarter. Yeah, thanks for the question.

Riley McCormack: The most of the term was specifically related to transition to our COE program. So is Riley stated and will prepare the remarks. We don't expect to see any more customers be moving in the COE program. So we expect that most of that is behind us at this point. Yeah, Josh, Josh, maybe if I double click on that just just quickly. Our traditional product in the bar program. There were two types of partners we had in there.

Riley McCormack: We had the big partners who were technologically capable and really wanted to use eliminate to build their own products and services on top of. And then we had a bunch of partners that that maybe I'm less interested in building things wanted access to our technology to get a ton of customers and they wanted to sell our existing products. And then we had a third class of partners that would have fallen to that second category that didn't want to sign up in a bar.

Riley McCormack: So we still have partners that we consider under our model. These are the bigger customers who want to build things on top of eliminate. We've been our focus is been on the second group is getting to a bigger group of potential partners. And that's what the COE program allows and the reason it allows is it's lower upfront cost. They're really going to have a peer of COE that is free. You know, it's our entry gear.

Riley McCormack: But it's we're not trying to monetize the relationship as much. We are the direct relationship of a partner. We are trying to both have skin in the game so we can go after their customers and help their customers solve the kind of problems. So that's what I meant when you know the transition is low front air are our COE deals are going to be less than our traditional bar deals on day one.

Riley McCormack: But they are set up to be focused for on the massive pipeline from the end customers that we can service together and that's why it's over time. It's going to lead to a lot higher ARR and it's also more focused because they're selling our products or they're reselling our products or they're bringing us leads for our products as opposed to them building their own things on top of it. Does that answer your question a little bit? That's very helpful. I think and provide some clarity on what's going on there.

Riley McCormack: Maybe moving on here, if you look at some of the legislation that's progressing in Europe and Canada around plastic recycling, can you just give us any updates you have in terms of timelines, any change in expectations you have on how the projects will progress relative to kind of maybe public statements you've made previously and maybe just any other relevant information that investors should be aware of with the current recycling opportunity. Yeah, it's great.

Riley McCormack: And I definitely put you back to the fair of remarks where it said our first partner and our new data market motion. We they told us they expected to find a deal in the second half this year to start a European country which is huge. We're also expanding the number of partners we're in conversation with, but not just number of customers but other countries. And we expect to have a whole other way of additional potential partners that we're getting introductions to from a very powerful and wonderful partner of ours.

Riley McCormack: So that's, you know, on the opening up Digimark Recycle Market which is where our focus is. Holy Grail Work continues. And if you refer the coordinator in snapshot, you'll see that there's some revenue coming in the back half of this year from Holy Grail Work, which is important. You know, it's continued proof of concept. I've never seen 170 organizations do a very public policy on a single company software like Holy Grail is.

Riley McCormack: It's wonderful. It's so many different ways. Not only regulation, there's a better regulation. This is, depending on who you talk to, top three problem are our growth faces, right, is that we only have one planet. And we got to solve for the plastic recycling issue. So kind of regulation are, we don't want to wait for regulation to be the driver regulations are wonderful talent. You know, people can see the right you on the wall and see what's coming down to regulation.

Riley McCormack: So I think it gives an urgency to the conversation, but we don't want to remind that we want to drive our own urgency. And so that's what we really focus on these conversations, so this new data market is partnership model and Digimark Recycle. Got it. That's helpful.

Riley McCormack: And then you highlighted in the prepared remarks that in Q2, you demonstrated with your largest commercial customer the ability to carry a heavy load and a multi signal future. I know that you're limited with what you can discuss with this, but can you just discuss or maybe just, you know, from a high level explain what you were referring to maybe with this particular statement. Yeah, I would point to the two developments that I, that I mean, that fact is powerful, right, and interesting, but what's really important is the two developments that come from that fact.

Riley McCormack: The first and most immediately that we believe the customer understands the more items in their store, including items produced by the national brands, the more profound improvement in what they're trying to do will be. And then secondly, they were saying the value of our owning more of a technology stack on the razor component on using more of eliminate capabilities to build up the points of detection. I can't provide any additional details except I do want to stress to think it's difficult to overstate the importance of these developments, these are important developments, and we look forward to being able to talk about it more recently. Understood.

Charles Beck: And just one quick financial question for me, as you're looking at the operating expense growth for the balance of the year, I think, you know, aside from the adjustment to the growth total expenses grew 2% year-over-year, which is great, how should we think about any increased hiring or expenses coming into the model for the second half of the year? Thanks, guys. Yeah, Josh, you know, we don't necessarily give guidance when we do actually I can just talk.

Charles Beck: We don't expect that we need to ramp up the expenses significantly at all, and quite frankly, generally expenses are a little bit higher in the first half of the year than they are in the second half of the year. Just given some of the year-end compliance, some things that we have in Q1, so we wouldn't expect to see material growth in expenses. Now, obviously, at a much higher scale of revenue, there will be some additive expenses, but as I touched on in my prepared remarks, you know, this business, we believe that's tremendous operational leverage, and you can start to see that where we're able to grow revenue at 39% in our expenses are pretty low.

Charles Beck: So we can't say that the expenses won't grow, but they shouldn't have to grow at a significant amount, even to reach a much higher scale. Awesome. Thanks, guys. Thanks, Josh. Once again, to ask a question, please press star one.

Jeff Van Ree: Our next question is from Jeff Van Ree with Great Helm. Great. Thanks. A couple for me, guys. Maybe first, just can you quantify on the ARR, what was the actual dollar impact of that turn to customer? Yeah, so Jeff, we're not providing any other metrics around ARR at this point. Indian ARR is really our true north as a business, providing other metrics at this point, and Tom, just given our scale, could be misleading, and therefore, you know, we're not going to provide them with this juncture. You know, we can't wait to be at the scale, we're providing more of those metrics like gross ads and turn and things like that, but at this point, we're not prepared to do that.

Riley McCormack: Okay. Maybe I'll try on the multi-year Validate deal that you had. Can you talk more about that? You said it was a COE source deal. What's the size of the deal? What's the use case? Just a little more clarity there. Yeah. It's around, it's a lot of six gigahertz per year. ARR. It's a producer of products who has tried other ways to authenticate and stop both tech as well as the version of their products and realize that we have a pretty good solution.

Riley McCormack: So there's nothing, you know, well, I guess there is actually, this is a good COE partner. It's a value customer there, right? So it's always great to start with a COE partner as to how you customer. It shows that relationship is up to a good start because they're putting us in front of their customers. We got a performance. We're not just trying to solve the customer's problem, we're trying to make our partners look good and help them get more comfort and essence and really build that partnership.

Riley McCormack: But there's nothing I would say unusual or we love all of our deals. It's not nothing. It wasn't an exciting deal. There's nothing unusual. It's just our first one. It came through the COE program, which is a pretty quick turnaround. We launched a parking Q2 and signed our first partner source deal in the same . . That was the second key development, Jeff Howard's referencing here is they're understanding that the more they use the capabilities of the eliminate is a huge amount.

Riley McCormack: If you go back to the 2019 deal, our focus across this company is on solving the problems front of mind for our customers. And when you look at the retail industry, there's far and away two things on the front of their mind. And loss production, especially post-COVID, which is in general, but it's getting worse. You're seeing a big retail is taking on self-checkup, or putting more stuff behind locks. That is becoming real at the retail space.

Riley McCormack: It's really a skyrocketing one of the top concerns. And the other one is next generation operations. The retail industry is, for the most part, they had improvements, but it's kind of the same process for the last couple of decades. If we can build solutions that can address the industry's going versus where they are, that's a huge amount. If our solutions can not only add value to their existing processes, but also future proofing for the future ones, Jeff, those are wonderful conversations to be having with these people.

Riley McCormack: Yeah, got it. And maybe sorry, this will be my last on the gift cards, because that's very interesting. I don't know if I came out of nowhere, but certainly showed up quickly. The materiality of it, the way you're describing it and the pace at which it showed up. You talked about all these attack vectors on gift cards. Can you just give us a 22nd education on a little more of the opportunity around gift cards?

Riley McCormack: And then, I don't know, any sense on timing. Yeah, I realize it's just a swag, but how quickly can these result in ARR? So in terms of the attacks, there's multiple vectors of attacks. They roll into a couple of big high top level ones. Right, one is straighting, so getting a gift card that you believe has money on it, but the money's already stolen in the second one of social engineering. Those are the two main vectors, but there's a bunch of other vectors and there's a bunch of sub-attacks within those vectors.

Riley McCormack: But it's basically they're buying a gift card that you should have that value on it, and it doesn't when you get it or else social engineering. And again, you know, most of these social engineering attacks, so after the elder lady or, you know, so those are the two big problems, become an issue, not just to the industries at all. And the only thing this gift card industry is massive globally in terms of the total amount of money that it started on its parts, and it's growing it in quite a big large.

Riley McCormack: They're really growing faster with the attacks because this industry has tried a lot of older analog type technologies that you just proved and have to be up for the challenge of a really dedicated group of thieves because of the size of the ability at the end of the rainbow. So, you know, it's tough to get into exactly how we're solving all the problems. This is the tough. Again, we identify and authenticate them.

Riley McCormack: Identify, we love to talk about it, authenticating. You know, part of, we don't want to get too far into what we're doing, but we have multiple different solutions, multiple different implementations, as I mentioned. And then it's for the kind of figure, but there's, you know, we don't know what we don't know. As I mentioned, you know, the pace that this is evolving and the engagement is unlike anything I've ever seen, it is remarkable.

Riley McCormack: The goal on this fall was to introduce the idea, just so you all have awareness of it because, like I said at the beginning, our competency of a solution and the materiality, our business of our right. Thank you.

Riley McCormack: Our next question comes from Jeff Bernstein with Silver Bernstein. Hi guys, thanks for letting me ask the question. I just want to get an update on the California legislation and whether you think that might actually get voted through, I guess they're their Senate this summer. And then I guess there's some different legislation that's starting to percolate for the US government as well, you know, relating to AI defense. Yeah, so I may be 30 to 11, I mean, we're just absolutely thrilled to be part of this conversation, not only because we can make a real impact to a really pressing problem, but also because it speaks to our recognized leadership and digital water, right?

Riley McCormack: They approached us to see experts and probably goes without saying, but I'll say it reliably in favor. Not only because we know that the implementation and the solutions, and it's not just digital water, right? This is a very comprehensive bill. 32 of them will work. And the technology behind it, which is a lot of digital water, marketing based up, well, of course, you know, that we know will work.

Riley McCormack: Trying to predict how legislation moves through any processes is probably, you know, beyond the ability to do. I can tell you right now, this is an update. It's currently in the Senate appropriations committee and the public assistance style, which is where I forget the hurdle, but any bill that has above a certain very low bar for financial impact gets put into the suspense file. And we're waiting for progress out of that.

Riley McCormack: We provided direct feedback on the content we've testified on this. And we're just as anxious awaiting progress as you are. Doctor, and then on the federal level, are they also kind of going to the same path in terms of digital watermarking and other technologies that will be in there? Yeah, the federal level. There's a lot of different bills talking about this. You know, if you recall, we were at the AI insight forums.

Riley McCormack: We were also a founding member of the NIST, which is a National Institute for Standards and Technology. We're a founding member of the AI initiative group. So we're supporting at the federal level as well. You know, what's remarkable is how quickly to be 30 to 11 is moving. California has a history of leading but not just the country, but the world in big, big, important things. So, you know, we love all of them.

Riley McCormack: And again, you know, this is not just a problem facing the US, right? This is a global problem. So we're supportive and we're trying to do all we can to help educate governments and regulatory bodies globally. Because this is a big problem. And I think the outcome of this is wonderful. I mean, you know, we believe this can truly deliver the safer, fair, and more rational, like an authentic internet revolve deserved since the internet was created. It will be great to get the 15th largest country signed up, so I'm looking forward to that.

Riley McCormack: Thank you.

Riley McCormack: There are no further questions at this time, and I would like to call back to Riley McCormack for closing remarks.

Riley McCormack: Thank you everybody for joining us this afternoon. I hope you have a great rest of your day. Thank you.

Operator: This concludes today's conference. Thank you for your participation. You may disconnect real lines at this time.