Digimarc Corporation Common Stock 2026 Q2 Earnings Call

Thank you, Max. Welcome everyone to our Q2 earnings call. I'm Charles Beck, Digimarc's CFO, and I'm joined today by Paul Carreiro, Digimarc's CEO. On the call today, Paul will share his plans for the next 90 days, and I will provide a business update and discuss our Q2 2026 financial results. This will be followed by a question and answer forum. 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 specific risk factors that could cause actual results to differ materially. Paul, I'll turn the call over to you now.

Great. Thank you, Charles. Hello, everyone. Before I walk through the plan, I want to spend a moment on why I took this role. It's just the lens through which everything else I say today should be understood. When I looked at Digimarc, I saw a company trading well below the value of what it had actually been built on, proprietary technology, a genuinely differentiated platform, and real provable customer outcomes already in production, held back by a commercial execution gap that is entirely fixable. That is rare and, frankly, an exciting setup. The hardest part, building durable technological differentiation, has already been done. What was missing was leadership focus, structure, and accountability to convert that differentiation into revenue at the pace it deserves.

I built my career around finding exactly this kind of situation, and I'm genuinely energized by how much upside sits on the other side of straightforward execution discipline. That conviction is the foundation for everything you'll hear from me on this call. 30 days into this seat, my conclusion is not that Digimarc lacks a differentiated technology position. The platform, the IP underlying our digital and physical watermarking capability, and the depth of our Illuminate stack should not be in question. What has been in question is commercial execution. Whether the organization could reliably convert genuine technological differentiation into a forecastable and repeatable revenue motion. That is the constraint we will address, and it is the lens through which I would ask you to evaluate everything else in this plan. The first concrete evidence of that shift are two early leadership hires.

We have brought in a chief revenue officer who now holds quota, pipeline, and forecast accountability across every vertical. A single point of ownership that simply did not exist before, and that alone is one of the highest leverage changes we can make. Diffuse commercial accountability is one of the more common and, importantly, one of the more correctable causes of underperformance in businesses our size, and we've now closed that gap. Alongside that, we've hired a VP of retail solutions who I know well to give our largest and fastest-moving vertical dedicated leadership rather than shared part-time attention it received historically. Both hires matter to this narrative for the same underlying reason. They provide focus and dedicated ownership and accountability, and that is what produces forecast results and reliability.

We are standing up a real go-to-market engine and leadership team, which I have built successfully a number of times over my career. External messaging discipline, a functioning revenue operations capability, a pre-sales value engineering capacity in support of our new leadership model rather than layered into the old structure. We are tightening forecast and pipeline rigor to the standard this market should expect, and I'm confident we'll get there quickly because the underlying demand signals and proof points I'll walk you through shortly are already strong. We are redesigning our organization in order to achieve discipline, focus, and accelerated growth. We have a plan already in motion, and that is the difference between a company with a problem and a company executing an accelerated transformation. The plan itself rests on four priorities.

I want to walk you through not just what they are, but why they are sequenced the way they are. Because the sequencing is itself a statement about capital and operating discipline. The first priority is narrowing our industry focus and our messaging while rebuilding our commercial engine focused on our two highest vertical industries, retail, anchored by our Secure Gift Card solution, and CPG. We're evolving our messaging around three questions in cascading order. Which industries we serve, which problems do we solve in those industries, and what value do we create in doing so? All enabled by our common platform. The second priority is evolving our organizational design to support and accelerate that focus.

We are building out the CRO, head of marketing, CPO, revenue operations, value engineering, and a dedicated partner and ecosystem leadership function, and using that foundational structure to stand up two purpose-built sales teams, one for retail, one for CPG, rather than a single generalized sales organization asked to cover five industries with random attention. The third priority is reorienting how we engage with all of our customer and prospect relationships. We are implementing a formal 360-degree customer engagement model turning account management into a repeatable discipline applied to every relationship. These actions will not only accelerate our upsell, cross-sell opportunity, but also increase retention. The fourth priority is organizing a roadshow to take our exciting go-forward story directly to the market. The recent new hires announced as a strong indication of how purposeful I'm being to drive the changes needed.

Now, let me briefly walk you through each of these priorities. Priority 1 is where I would ask analysts to focus first, because it is the one area of our plan where we already have measurable proof rather than a forward promise. In retail, our Secure Gift Card solution program is live today, anchored by our Schnucks chain-wide deployment across 115 stores, clearly demonstrating that the solution can be successful in driving value in a live retail environment. A little more on that later. Gift card fraud is not a hypothetical problem we are posing to solve. It is real dollarized leakage that retailers already measure and already budget against. CPG is another exciting industry for Digimarc. A great example is a global CPG manufacturer and distributor using our Digimarc Digital Link platform.

It is a live global rollout spanning 45,000 SKUs across their multiple global brands available in every household, and is positioned directly ahead of two external forcing functions, the GS1 Sunrise 2027 Global Initiative and the EU Digital Product Passport Mandate. This is not a discretionary purchase that a CPG customer can defer. It is a compliance requirement already fixed on the calendar. To support these industries and to scale quickly, we will have dedicated go-to-market ownership across the full customer life cycle. This is what is needed in order to provide a repeatable, forecastable revenue model, which this business does not reliably have. Let me also provide you with a further update on our retail Secure Gift Card solution program rollout.

As you have heard from us previously, our Secure Gift Card solution program has rapidly moved from proof of concept to a live in-production deployment, anchored by Schnucks, as I noted previously, anchored this program's success. We will now build out our global partner ecosystem needed to scale quickly rather than reinvent the deal by deal. We are partnered with Blackhawk Network and InComm on card issuance and program distribution, Zebra Technologies, Datalogic, and Honeywell on point-of-sale and scanning infrastructure, Graph-Tech USA, SDL Labels on secure card production and serialization, and WestRock on packaging integration. A supply chain that is truly integrated end-to-end. That alignment is precisely why we are confident in an accelerated rollout from here. The technology is proven and the partnerships are in place. The remaining work is pipeline build-out and execution, not partnership building or infrastructure development.

At the start of this year, we were only working with a single retailer. Today, our pipeline has grown over 30 times, and we have more than 31 large and mid-sized retailers at various stages of engagement, ranging from early discovery through active pilots and production rollouts, and rapidly growing. Priority 2 is organizational. Structure determines the speed and consistency with which strategy converts into real results. The structure that brought Digimarc to this point was not designed for our next stage of growth, so we are not tuning it incrementally. We are redesigning it around where the business is going rather than where it has been. Our Chief Revenue Officer, recently hired, will unify global sales, partnerships, customer success under a single owner, closing the accountability gaps I described earlier. Our Chief Operating Officer owns cross-functional execution, people, global marketing, and operating strategy.

Our Chief Product Officer will build and define our value-based roadmap strategy and will function as the interpreter, defining the business problems our platform solves across our entire registered platform. Additionally, we'll be hiring a VP of partner and ecosystem, which will build and manage our global partner community. Of course, we'll maintain and enhance our CTO and CFO functions as we progress and evolve. We are not asking the market to underwrite a series of reorganizations. We are asking it to underwrite one durable structural decision. The third and fourth priorities are where strategy becomes visible to the two audiences who ultimately have to believe it for any of this to matter, our customers and our shareholders. On the customer side, our 360-degree customer engagement model will ensure our go-to-market teams will personally engage with every account in person.

This approach will ensure we engage with all accounts well ahead of contract decision point to significantly increase retention and maximize upsell, cross-sell opportunities with existing customers. On the shareholder side, we will continue to take this narrative directly to the market in a roadshow targeted for existing and new investors in the coming weeks, led jointly by myself and our CFO, Charles. Our goal is to continue to provide the investment community with enough confidence that it is really going to be different this time. We'll be leading with proof, not promise. I'm going to close on market trends. This slide will answer a question I would expect every analyst on this call to be asking directly. If you are narrowing commercial focus to two industries, what happens to the others, and are you leaving revenue and TAM on the table by doing so?