Digimarc Corp (DMRC) 2023 Q3 法說會逐字稿

Greetings, and welcome to the Digimarc Corporation Third Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joel Meyer, Chief Legal Officer. Thank you. You may begin.

您好，歡迎參加 Digimarc Corporation 2023 年第三季財報電話會議。 （操作員指示）謹此提醒，本次會議正在錄製中。現在我很高興向您介紹主持人，首席法務官喬爾·邁耶 (Joel Meyer)。謝謝。你可以開始了。

Thank you. Welcome to our Q3 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 Q3 2023 financial results. This will be followed by a question-and-answer forum.

謝謝。歡迎參加我們的第三季電話會議。萊利·麥科馬克，我們的執行長；我們的財務長查爾斯貝克 (Charles Beck) 與我一起參加了電話會議。在今天的電話會議上，我們將提供業務更新並討論 2023 年第三季的財務表現。隨後將舉行問答論壇。

We have posted our prepared remarks in the Investor Relations section of our website and will archive this webcast there. Before we begin, let me remind everyone that today's discussion contains forward-looking statements 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.

我們已在網站的投資者關係部分發布了準備好的評論，並將在此存檔此網路廣播。在開始之前，我要提醒大家，今天的討論包含前瞻性陳述，有風險和不確定性。請參閱我們的新聞稿，以了解有關可能導致實際結果出現重大差異的特定風險因素的更多資​​訊。萊利現在將提供業務更新。

Thank you, Joel, and hello, everyone. Q3 was another strong quarter for Digimarc. While Charles will provide a more detailed discussion on the financial results during his remarks, there are 2 metrics I want to highlight at the top of the call because their absolute levels as well as our expectation they will get even stronger, are important markers of our progress in building a high-quality, high-growth and highly cash flow generative business.

謝謝你，喬爾，大家好。第三季是 Digimarc 另一個強勁的季度。雖然查爾斯將在演講中對財務業績進行更詳細的討論，但我想在電話會議的頂部強調兩個指標，因為它們的絕對水平以及我們對它們將變得更加強勁的預期，是我們業績的重要標誌。打造高品質、高成長、高現金流的業務取得進展。

First, we grew our annual recurring revenue or ARR 54% year-over-year. As mentioned during the last few earnings calls, first year bookings has become a less relevant metric as our focus is on growing our recurring and high-margin subscription revenue and signing those customers to multiyear deals.

首先，我們的年度經常性收入或 ARR 年增 54%。正如在過去幾次財報電話會議中提到的，第一年預訂量已成為一個不太相關的指標，因為我們的重點是增加經常性和高利潤的訂閱收入，並與這些客戶簽訂多年協議。

Our decision to begin reporting our quarter-end ARR reflects our desire to provide investors transparency to the results of that focus as well as a greater understanding of our true underlying growth. And while a 54% year-over-year growth rate is objectively high, we believe we are capable of more. In fact, while it is still early in the current quarter, we expect our year-over-year ARR growth rate in Q4 will be noticeably greater than it was in Q3.

我們開始報告季度末 ARR 的決定反映了我們希望向投資者提供重點關注結果的透明度，並更好地了解我們真正的潛在成長。雖然 54% 的年成長率客觀上很高，但我們相信我們有能力做得更多。事實上，雖然現在還處於本季初期，但我們預計第四季的同比 ARR 成長率將明顯高於第三季。

Second, we expanded our subscription gross profit margin to 85.5%, an increase of 1,000 basis points year-over-year and 200 basis points sequentially. On our Q4 2022 call, Charles mentioned our expectation of driving subscription gross profit margin north of 80% in 2023, and 3 quarters into the year, we have not only exceeded this target in every single quarter, but our gross profit margin is now closer to 90% than 80%.

其次，我們的認購毛利率擴大至85.5%，年增1,000個基點，季增200個基點。在我們的2022 年第四季電話會議上，Charles 提到我們預計到2023 年將訂閱毛利率提高到80% 以上，今年的三個季度，我們不僅每個季度都超過了這一目標，而且我們的毛利率現在更接近了比 80% 到 90%。

There is no greater predictor of the company's ultimate level of profitability nor better proof of the depth and width of its moats than subscription gross profit margin. And at 85.5%, we are near best-in-class, similar to the levels of other high-quality and wide-moated SaaS businesses that enjoy the extra gross profit margin tailwinds that come from being much larger than we are today. Like our ARR growth rate, we believe we will improve from these already-high levels.

沒有什麼比認購毛利率更能預測公司的最終獲利水平，也能更好地證明其護城河的深度和寬度。我們的毛利率為 85.5%，接近同類最佳水平，與其他高品質和廣泛的 SaaS 企業的水平類似，這些企業由於規模比今天大得多，因此享有額外的毛利率優勢。就像我們的 ARR 成長率一樣，我們相信我們將在這些已經很高的水平上有所改善。

The combination of high and accelerating ARR growth and our significant gross profit margin expansion not only speaks to the quality of the business we are building and the differentiated products we are able to deliver, but acts as a potent cocktail in getting us to cash flow breakeven and beyond.

ARR 高速成長和顯著的毛利率擴張相結合，不僅體現了我們正在建立的業務品質和我們能夠提供的差異化產品，而且是讓我們實現現金流盈虧平衡的強大雞尾酒。超越。

I want to spend the rest of my prepared remarks discussing 3 specific areas that we know are of interest to investors, but before I do, I want to stress that I'm focusing only on these 3 simply because of time limitations, not because they are the only areas by which we are excited. In fact, if one were to compare my prepared remarks over the past few quarters to the news we have delivered in the subsequent quarter, you'll notice a little correlation with topics.

我想用我準備好的發言的其餘部分來討論我們知道投資者感興趣的3 個具體領域，但在此之前，我想強調，我只關注這3 個領域，僅僅是因為時間限制，而不是因為它們是唯一令我們興奮的領域。事實上，如果將我在過去幾季準備的言論與我們在下一季發布的新聞進行比較，您會發現與主題有一些相關性。

I view my prepared remarks as a forum to provide updates on areas in which we have received the most questions as well as an opportunity to continue providing transparency into the different parts of our business, not as a sneak preview of upcoming news. We prefer to let the news, i.e., the results, speak for themselves.

我將我準備好的發言視為一個論壇，提供我們收到最多問題的領域的最新信息，以及繼續為我們業務的不同部分提供透明度的機會，而不是作為即將發布的新聞的預覽。我們更願意讓新聞（即結果）來說話。

Starting with Digimarc Recycle, we recently announced that France will be the first countrywide rollout of this world-changing product. Digimarc Recycle represents a revolution in the sortation and thus recycling of plastic waste. It is the power to not just increase the quantity and quality of plastic recycling, but also uncover never-before-seen data about the post-purchase product journey.

從 Digimarc Recycle 開始，我們最近宣布法國將成為第一個在全國推出這項改變世界的產品的國家。 Digimarc Recycle 代表了塑膠廢棄物分類和回收領域的一場革命。它不僅能夠提高塑膠回收的數量和質量，還能發現有關購買後產品旅程的前所未見的數據。

According to the Ellen MacArthur Foundation, higher-quality plastics recycling is also one of the most impactful things we can do as a planet to reduce carbon emissions, and moreover, it comes at a negative financial cost. This means there is an economic return on investment from achieving higher-quality plastics recycling in addition to the obvious environmental benefits, something that a recently industry-commissioned study on Digimarc Recycle independently corroborated.

根據艾倫麥克阿瑟基金會的說法，更高品質的塑膠回收也是我們作為一個星球可以做的最有影響力的事情之一，以減少碳排放，而且，它會帶來負的財務成本。這意味著除了明顯的環境效益之外，實現更高品質的塑膠回收還能帶來經濟投資回報，最近由業界委託進行的 Digimarc Recycle 獨立研究證實了這一點。

It is for all these reasons and more that Fortune recently ranked us 17th on their esteemed 2023 Change the World list, despite their stated preference for companies generating over $1 billion of revenue, which we don't have yet.

正是出於所有這些原因以及更多原因，《財富》雜誌最近在其備受推崇的2023 年「改變世界」榜單中將我們排在第17 位，儘管他們表示更青睞收入超過10 億美元的公司，而我們目前還沒有這樣做。

The news regarding the countrywide rollout in France is a major milestone for our company and a testament to the power of our technology and our team. We are dedicated to working with this initial group of visionaries to help expand adoption in France, and on that front, I'm excited to share that we are close to signing a deal with a very large company that was not even listed in our press release from only a few weeks ago.

有關在法國全國推廣的消息是我們公司的一個重要里程碑，也證明了我們技術和團隊的力量。我們致力於與最初的一群有遠見的人合作，幫助擴大在法國的採用，在這方面，我很高興與大家分享，我們即將與一家甚至沒有在我們的媒體上列出的非常大的公司簽署協議僅幾週前發布。

Beyond France, we are progressing activities in multiple other countries as we pursue the country-by-country avenue for driving Digimarc Recycle adoption. Important to note, 2 weeks ago, the European Commission voted on amendments to the Packaging and Packaging Waste Regulation or PPWR as that important law progresses towards finalization. Included in the new amendments, the time line to implement digital marking was shortened by 6 months. We applaud the EC's vision and their urgency.

除了法國外，我們還在其他多個國家開展活動，尋求逐個國家推動 Digimarc Recycle 採取的途徑。值得注意的是，兩週前，歐盟委員會就《包裝和包裝廢棄物法規》（PPWR）修正案進行了投票，因為這項重要法律已接近最終定稿。新修正案將實施數位標記的時間縮短了 6 個月。我們對歐盟委員會的願景及其緊迫性表示讚賞。

We are also pursuing additional go-to-market avenues for Digimarc Recycle in parallel with this country-by-country approach, including partnering directly with global brands and retailers to push adoption in multiple countries at once, working with prospects to open a market via a closed-loop solution, which can then act as a catalyst for wider in-country adoption, and progressing our work in lighting up deposit return scheme value-added resellers, which then acts as a profitable wedge to open Digimarc Recycle conversations in those countries.

與這種逐個國家的方法並行，我們也正在尋求更多的Digimarc Recycle 進入市場的途徑，包括直接與全球品牌和零售商合作，同時推動多個國家的採用，與潛在客戶合作，透過以下方式打開市場：一個閉環解決方案，然後可以作為催化劑在國內更廣泛地採用，並推進我們在點亮存款返還計劃增值經銷商方面的工作，然後作為在這些國家打開 Digimarc Recycle 對話的有利可圖的楔子。

On this last front, I was recently in-country meeting with our first DRS VAR, and it was exhilarating to see initial production of the DRS logo being applied to real-world products. I believe one of our greatest strengths will always be the awesomeness of our VARs, and I expect when the world sees the tangible results of this VAR's easy, cost-effective and quick to scale solution, interest in Digimarc's ability to help improve upon existing DRS solutions will significantly increase.

在這最後一個方面，我最近在國內與我們的第一位 DRS VAR 會面，很高興看到 DRS 徽標的初步生產應用於實際產品。我相信我們最大的優勢之一永遠是我們的VAR 的出色表現，我希望當世界看到這個VAR 簡單、經濟高效且快速擴展的解決方案的實際成果時，會對Digimarc 幫助改進現有DRS 的能力感興趣解決方案將顯著增加。

One last thing to highlight on Recycle. While historically, our focus has been on the application of Digimarc Recycle for the plastic pollution crisis, recently, there has been interest by other substrate ecosystems to solve their own end of product life issues. There's obviously end customer synergies as retailers and brands use multiple different materials in their packaging, and our proven results in plastics objectively lessen the need for proof-of-concept work in other substrates. Also worth noting, the PPWR doesn't restrict the digital marking requirement to just plastic packaging.

最後要強調的一點是回收。雖然從歷史上看，我們的重點一直是應用 Digimarc Recycle 來解決塑膠污染危機，但最近，其他基材生態系統也有興趣解決自己的產品壽命終止問題。由於零售商和品牌在包裝中使用多種不同的材料，因此最終客戶顯然會產生協同效應，而我們在塑膠方面經過驗證的結果客觀上減少了在其他基材上進行概念驗證工作的需要。另外值得注意的是，PPWR 並不將數位標記要求僅限於塑膠包裝。

Next, I'd like to spend some time on Digimarc Illuminate for Factory Automation. This compelling offering brings the power of the Illuminate product digitization platform into a production, fulfillment or distribution facility, where the ability to identify specific products in robust, deterministic and novel ways unlocks important new automations not otherwise possible.

接下來，我想花一些時間來了解用於工廠自動化的 Digimarc Illuminate。這款引人注目的產品將Illuminate 產品數位化平台的強大功能帶入生產、履行或分銷設施，其中以穩健、確定性和新穎的方式識別特定產品的能力解鎖了其他方式不可能實現的重要的新自動化。

In the specific case of the deal we discussed last quarter, one of the world's largest CPGs was interested in removing excess packaging from one of their marquee products in an effort to save both money and the planet, but in so doing, would have lost the ability to differentiate between different variations of this product, something required for their exacting standards of quality assurance.

在我們上季度討論的交易的具體案例中，世界上最大的消費品公司之一有興趣從其一款大牌產品中去除多餘的包裝，以節省資金和保護地球，但這樣做會失去能夠區分該產品的不同變體，這是其嚴格的品質保證標準所必需的。

Enter Digimarc Illuminate for Factory Automation and its ability to connect physical products to their digital twins via our unique bridge, Digimarc digital watermarks. This cost- and environment-saving application is something that has sparked the interest of other prospects as well as multiple ecosystem partners who could act as force multipliers in our quest to digitize the world's products. In fact, one of our partners will be presenting our offering at an important industry event next week.

輸入用於工廠自動化的 Digimarc Illuminate，它能夠透過我們獨特的橋樑 Digimarc 數位浮水印將實體產品連接到其數位雙胞胎。這種節省成本和環境的應用程式引起了其他潛在客戶以及多個生態系統合作夥伴的興趣，他們可以在我們追求全球產品數位化的過程中發揮力量倍增器的作用。事實上，我們的合作夥伴之一將在下週的重要產業活動中展示我們的產品。

The potential here is enormous as we have all the necessary ingredients for success: a provable ROI, a wonderful environmental impact, a robust and interested ecosystem of force multipliers, an extremely happy customer, and of course, a unique solution that only the Digimarc Illuminate platform is capable of providing.

這裡的潛力是巨大的，因為我們擁有成功所需的所有要素：可證明的投資回報率、出色的環境影響、強大且感興趣的力量倍增生態系統、非常滿意的客戶，當然還有隻有Digimarc Illuminate才能實現的獨特解決方案平台有能力提供。

Other prospects are exploring using Digimarc Illuminate for Factory Automation to provide novel automations that differ from the maintenance of production line quality control when removing excess packaging. Examples include solving for code occlusion caused by harsh factory conditions and automating workflows that don't lend themselves to the perfect presentation of a single code.

其他潛在客戶正在探索使用 Digimarc Illuminate 進行工廠自動化，以提供不同於去除多餘包裝時維持生產線品質控制的新穎自動化。例如解決惡劣工廠條件導致的程式碼遮擋問題，以及無法完美呈現單一程式碼的自動化工作流程。

Recall the multiple characteristics of Digimarc's digital watermarks: covert, ubiquitous, redundant and secure, and recall that for use cases that require one, some or all of these attributes, Digimarc digital watermarks are either the best choice or the only choice for connecting physical products to their digital twins.

回想一下Digimarc 數位浮水印的多重特徵：隱藏、無處不在、冗餘和安全，並回想一下，對於需要其中一個、部分或全部屬性的用例，Digimarc 數位浮水印要么是連接實體產品的最佳選擇，要么是唯一選擇到他們的數位雙胞胎。

When it comes to automating factory operations, we are finding there are multiple reasons why one, some or all of these attributes are required. As the only product digitization platform capable of using digital watermarks as the bridge between a physical object and its digital twin, we believe the sandboxed version of our platform, Digimarc illuminate for Factory Automation, has a bright future in helping our customers solve some really pressing problems, and in so doing, allowing them to either start or continue along their product digitization journey.

當談到自動化工廠運作時，我們發現需要其中一個、部分或全部屬性的原因有很多。作為唯一能夠使用數位浮水印作為實體物件與其數位孿生之間橋樑的產品數位化平台，我們相信我們平台的沙盒版本 Digimarc 照亮工廠自動化在幫助我們的客戶解決一些真正緊迫的問題方面擁有光明的前景問題，從而使他們能夠開始或繼續他們的產品數位化之旅。

In terms of market size, as I mentioned last quarter, we believe this solution is applicable to hundreds, if not thousands of potential customers, and the single deal we signed in Q2, which covers a single product across 2 countries, represents mid-6 figures of ARR.

就市場規模而言，正如我上季度提到的，我們相信該解決方案適用於數百甚至數千名潛在客戶，我們在第二季度簽署的單筆交易涵蓋了2 個國家/地區的單一產品，代表了 6 ARR 數字。

Finally, moving to Digimarc Validate, it is incredible to look back on the progress we have made since our last call, including the launch of our product just over a month ago. Our legacy of being the pioneer and widely recognized leader in digital watermarking, the technology that has been universally accepted as having a key role to play in the new world of generative AI, coupled with our experience in building massive multinational multi-stakeholder mission-critical systems of trusted authenticity upon that technology, has set our entree into important conversations across the ecosystem. We are actively engaged with governments, standards bodies and content creators and technology partners and prospects of all sizes.

最後，轉向 Digimarc Validate，回顧自上次通話以來我們所取得的進展令人難以置信，包括一個多月前推出我們的產品。我們是數位浮水印領域的先驅和廣泛認可的領導者，該技術已被普遍認為在生成人工智慧的新世界中發揮關鍵作用，再加上我們在構建大型跨國多利益相關者關鍵任務方面的經驗基於該技術的可信真實性系統，使我們進入了整個生態系統的重要對話。我們積極與政府、標準機構、內容創作者、技術合作夥伴和各種規模的潛在客戶合作。

GenAI didn't create the deepfake issue, but it did democratize it. And if the world is to enjoy the benefits of this powerful new technology, action must be taken to protect against its risks. This is not a view we are unique in having, and the speed at which all stakeholders are moving is astounding. We believe the result is the world will look back at GenAI as a catalyst for the delivery of something long overdue anyway: a safe, fair, trusted and authentic Internet. And Digimarc Validate is ideally positioned to be a foundational element of such a future.

GenAI 並沒有製造 Deepfake 問題，但它確實使其民主化。如果世界要享受這項強大新技術的好處，就必須採取行動防範其風險。這並不是我們獨有的觀點，而且所有利害關係人採取行動的速度令人震驚。我們相信，結果是全世界都會將 GenAI 視為催化劑，以實現早該實現的目標：安全、公平、可信和真實的互聯網。 Digimarc Validate 非常適合成為這樣一個未來的基礎要素。

On the government front, we've been engaging with leadership at the highest levels to discuss the need for tools to support the protection and authentication of digital assets in the GenAI era. We have met with senior leaders at the White House, executive agencies and departments and in Congress, and in these bipartisan meetings, our history, proven technology and ability to work across images and audio, especially on-device, is helping drive awareness of what's possible.

在政府方面，我們一直在與最高層領導層接觸，討論支持 GenAI 時代數位資產保護和身份驗證的工具的需求。我們會見了白宮、執行機構和部門以及國會的高級領導人，在這些兩黨會議中，我們的歷史、成熟的技術以及跨圖像和音頻（尤其是在設備上）工作的能力正在幫助提高人們的意識可能的。

We have been asked by multiple groups help educate and inform the conversation, commitments and coming regulation, and our ideas have been well received. We expect to continue participating in discussions at the highest levels to shape the future of artificial intelligence and the broader digital ecosystem, and we feel confident that Digimarc Validate has an important role to play in effectively protecting the rights of content creators and owners while also building the foundation of true digital asset authentication.

多個團體要求我們幫助教育和告知對話、承諾和即將到來的監管，我們的想法得到了好評。我們期望繼續參與最高層的討論，以塑造人工智慧和更廣泛的數位生態系統的未來，我們相信 Digimarc Validate 在有效保護內容創作者和所有者的權利方面可以發揮重要作用，同時也建立真正的數字資產認證的基礎。

On the standards body front, we are a member and heavily involved in the Coalition for Content Providence and Authenticity, otherwise known as C2PA. For those of you not familiar with C2PA, it is a group of industry leaders working to address the prevalence of misleading information online through the development of technical standards for certifying the source and history or provenance of media content.

在標準機構方面，我們是內容提供和真實性聯盟（也稱為 C2PA）的成員並積極參與其中。對於那些不熟悉 C2PA 的人來說，這是一個由行業領導者組成的團隊，致力於透過開發用於認證媒體內容的來源和歷史或出處的技術標準來解決線上誤導性資訊的普遍存在。

We are appreciative of all the hard, smart work this group has been doing and thrilled they understand digital watermarking has a role to play in improving the authenticity of digital content. I know there have been some questions around C2PA's Content Credentials and if this is competitive to Validate, and the answer is no. In fact, Digimarc will be supporting Content Credentials as part of our upcoming registry because while industry standards are necessary, they are not by themselves sufficient.

我們感謝該小組所做的所有辛勤而聰明的工作，並且很高興他們了解數位浮水印在提高數位內容的真實性方面可以發揮作用。我知道人們對 C2PA 的內容憑證存在一些疑問，以及這是否對驗證具有競爭力，答案是否定的。事實上，Digimarc 將支援內容憑證作為我們即將推出的註冊表的一部分，因為雖然行業標準是必要的，但它們本身還不夠。

Standards need companies to support them for there to be meaningful adoption, and we recognize we have an important role to play. Content Credentials are an elegant means of organizing and recording metadata, but the risk to metadata is that it can be altered and is removed by common workflows such as editing software and social networks, rendering it useless for the purpose of intellectual property protection and authentication in such scenarios. Just like in the physical world, our digital watermarks will act as unique, necessary and immutable bridge between the data and the object, allowing the content owner to control their digital asset's story.

標準需要公司的支持才能有意義地採用，我們認識到我們可以發揮重要作用。內容憑證是一種組織和記錄元資料的優雅方法，但元資料的風險在於它可以被編輯軟體和社交網路等常見工作流程更改和刪除，從而使其無法用於知識產權保護和身份驗證的目的。這樣的場景。就像在物理世界中一樣，我們的數位浮水印將充當數據和物件之間獨特、必要且不可變的橋樑，使內容所有者能夠控制其數位資產的故事。

On top of this governmental and standards body engagement, of course, we are building our Digimarc Validate business. Digimarc Validate provides value to content creators and their consumers as well as owners of detection points running the gamut of GenAI engines, e-commerce sites, network security companies and device vendors. We are engaging with prospects and partners across the full spectrum of size, and we intend to make it as difficult to counterfeit content and identity in the digital world as we have currency in the real world.

當然，除了政府和標準機構的參與之外，我們也正在建立 Digimarc Validate 業務。 Digimarc Validate 為內容創作者及其消費者以及運行 GenAI 引擎、電子商務網站、網路安全公司和設備供應商的檢測點所有者提供價值。我們正在與各種規模的潛在客戶和合作夥伴接觸，我們打算讓數位世界中的偽造內容和身分變得像現實世界中的貨幣一樣困難。

In addition to the massive opportunity ahead of us and the fact we are uniquely qualified and positioned to address it, there are 2 perhaps nonobvious important points worth highlighting about our entree into the digital domain. The first is that our ability to bridge both the physical and digital domains is a key differentiator of our platform, our products and our digital watermarks, and nowhere is that becoming as obvious as with Digimarc Validate.

除了擺在我們面前的巨大機會以及我們擁有獨特的資格和定位來應對這一機會之外，關於我們進入數位領域的過程，還有兩個可能不明顯的重要點值得強調。首先，我們橋接實體域和數位域的能力是我們平台、產品和數位浮水印的關鍵差異化因素，這一點在 Digimarc Validate 中表現得最為明顯。

And secondly, as I know at least a few investors have noticed from visiting our website, the expansion of Digimarc Validate in the digital domain allows us to open a fully digital sales motion. In terms of our mantra being easy to begin doing business and excellent at guiding customers along their product digitization journey, this web-based sales motion has opened a new door to easy.

其次，據我所知，至少有一些投資者在訪問我們的網站時注意到，Digimarc Validate 在數位領域的擴展使我們能夠開啟完全數位化的銷售動議。我們的座右銘是“輕鬆開展業務，並善於引導客戶完成產品數位化之旅”，這種基於網路的銷售活動為輕鬆開展業務打開了一扇新的大門。

Thus, the expansion of Digimarc Validate in the digital domain has not only dramatically increased our overall total addressable market, it has also increased our opportunities in the physical domain while adding width and depth to the moats surrounding all of our offerings. I will now turn the call over to Charles to discuss our financial results.

因此，Digimarc Validate 在數位領域的擴展不僅大大增加了我們的整體潛在市場，還增加了我們在物理領域的機會，同時增加了圍繞我們所有產品的護城河的寬度和深度。我現在將把電話轉給查爾斯，討論我們的財務表現。

Thank you, Riley, and hello, everyone. Before I dig deeper into our Q3 financial results, I wanted to share some financial highlights from the third quarter. We ended the quarter with $19.6 million of annual recurring revenue or ARR, representing 54% growth year-over-year. I'll talk more about this important performance metric in a minute. We achieved 85.5% subscription gross profit margin, we reduced our operating expenses year-over-year by 17%, and our free cash flow usage was only $400,000 for the quarter.

謝謝你，萊利，大家好。在深入研究第三季的財務表現之前，我想分享第三季的一些財務亮點。截至本季末，我們的年度經常性收入 (ARR) 為 1,960 萬美元，年增 54%。稍後我將詳細討論這個重要的效能指標。我們的訂閱毛利率達到了 85.5%，營運費用年減了 17%，本季的自由現金流使用量僅為 40 萬美元。

I highlight these areas as they are all critical drivers towards reaching profitability. Now onto the details. As we mentioned on previous earnings calls, we've been working to select a new reporting metric to replace first year commercial bookings that would provide a better indicator of our progress in growing our high-margin commercial subscription business. As Riley already mentioned, we have decided on annual recurring revenue as it's a key performance metric we are now using to run our business. We intend to report ending ARR each quarter with comparative periods so you can measure our progress.

我強調這些領域，因為它們都是獲利的關鍵驅動力。現在討論細節。正如我們在先前的財報電話會議上提到的，我們一直在努力選擇一個新的報告指標來取代第一年的商業預訂，這將更好地反映我們在發展高利潤商業訂閱業務方面的進展。正如萊利已經提到的，我們已經決定年度經常性收入，因為這是我們現在用來經營業務的關鍵績效指標。我們打算每季報告期末 ARR 以及比較期間，以便您可以衡量我們的進展。

We calculate ARR using the annual recurring fees stated in our sales contracts, thus mirroring the underlying economic value of these contracts. Also, ARR only includes recurring subscription fees from commercial contracts. Government contracts, service fees and nonrecurring subscription fees are excluded from our reported ARR. The reason for this is the most important growth driver we are all focused on is recurring commercial subscription revenue. We have included a table within the earnings script that reports our ARR at the end of each of the last 8 quarters for comparative purposes.

我們使用銷售合約中規定的年度經常性費用來計算 ARR，從而反映了這些合約的潛在經濟價值。此外，ARR 僅包括商業合約中的經常性訂閱費。政府合約費、服務費和非經常性訂閱費不包含在我們報告的 ARR 中。原因是我們都關注的最重要的成長動力是經常性商業訂閱收入。我們在收益腳本中包含了一個表格，報告了過去 8 個季度末的 ARR，以進行比較。

In addition to focusing on growing our high-margin commercial subscription business, we are also focusing on making sure the payment terms in our sales contracts are consistent with traditional SaaS terms, which results in the collection of annual payments upfront. I call this out because it is yet another benefit of our transition to becoming a product and platform company and allows our ARR growth to have a more immediate impact on improving cash burn.

除了專注於發展高利潤的商業訂閱業務外，我們還專注於確保銷售合約中的付款條款與傳統 SaaS 條款一致，從而提前收取年度付款。我之所以指出這一點，是因為這是我們轉型為產品和平台公司的另一個好處，並使我們的 ARR 成長能夠對改善現金消耗產生更直接的影響。

Ending ARR for the quarter was $19.6 million, representing an ARR growth of $6.9 million or 54% year-over-year. Total revenue for the quarter was $9 million, an increase of $1.2 million or 15% from $7.8 million in Q3 last year. Subscription revenue, which accounted for 53% of total revenue for the quarter, grew 18% from $4.1 million to $4.8 million. The increase reflects subscription revenue recognized on new customer contracts signed this year as well as upsells this year on existing customer contracts.

本季末 ARR 為 1,960 萬美元，ARR 成長 690 萬美元，年增 54%。該季度總收入為 900 萬美元，比去年第三季的 780 萬美元增加了 120 萬美元，即 15%。訂閱收入佔本季總營收的 53%，成長了 18%，從 410 萬美元增至 480 萬美元。這一增長反映了今年簽署的新客戶合約確認的訂閱收入以及今年現有客戶合約的追加銷售。

Service revenue increased 12% from $3.7 million to $4.2 million. The increase reflects a larger annual budget from the Central Banks for project work in 2023 than 2022, which includes both higher billing rates and project hours. Subscription gross profit margin improved from 75% in Q3 last year to over 85% in Q3 this year. The large increase year-over-year reflects 2 positive trends we've highlighted previously, both a favorable mix of subscription revenue to our newer products, and lower product infrastructure costs.

服務收入成長了 12%，從 370 萬美元增至 420 萬美元。這一增長反映了中央銀行 2023 年專案工作的年度預算比 2022 年更大，其中包括更高的計費費率和專案工時。訂閱毛利率從去年第三季的75%提高到今年第三季的85%以上。同比大幅成長反映了我們先前強調的兩個正面趨勢，即我們新產品的訂閱收入的有利組合，以及較低的產品基礎設施成本。

We expect these trends to continue, resulting in further expansion over time to our subscription gross profit margins. Service gross profit margin decreased from 57% in Q3 last year to 54% in Q3 this year. The decrease reflects a more favorable labor mix last year than this year. We continue to expect service gross profit margin to be in the mid-50s on average going forward with some fluctuation quarter-to-quarter depending on labor mix.

我們預計這些趨勢將持續下去，隨著時間的推移，我們的訂閱毛利率將進一步擴大。服務毛利率從去年第三季的57%下降至今年第三季的54%。這一下降反映出去年的勞動力結構比今年更為有利。我們繼續預期服務毛利率平均將在 50 多歲左右，但季度與季度之間會出現一些波動，具體取決於勞動力結構。

Operating expenses for the quarter were $16.4 million compared to $19.7 million in Q3 last year, a decrease of 17%. The large decrease in operating costs largely reflects lower headcount partially offset by annual compensation adjustments and lower contractor and consulting costs. Additionally, Q3 last year included $1.4 million of severance costs for organizational changes.

本季營運費用為 1,640 萬美元，較去年第三季的 1,970 萬美元下降 17%。營運成本的大幅下降主要反映了員工人數的減少，部分被年度薪酬調整以及承包商和諮詢成本的降低所抵消。此外，去年第三季還包括因組織變革而產生的 140 萬美元遣散費。

Non-GAAP operating expenses, which excludes noncash and nonrecurring items, were $13.2 million for the quarter, down 15% compared to $15.5 million in Q3 last year. Net loss per share for the quarter was $0.53 versus $0.76 in Q3 last year. Non-GAAP net loss per share was also considerably lower for the quarter at $0.29 versus $0.47 in Q3 last year.

本季非 GAAP 營運費用（不包括非現金和非經常性項目）為 1,320 萬美元，比去年第三季的 1,550 萬美元下降 15%。本季每股淨虧損為 0.53 美元，而去年第三季為 0.76 美元。本季非 GAAP 每股淨虧損也大幅下降，為 0.29 美元，去年第三季為 0.47 美元。

We ended the quarter with $33.3 million in cash and investments. Free cash flow usage was $400,000 for the quarter compared to $11.4 million used in Q3 last year. We used an additional $800,000 of cash in Q3 for share repurchases.

本季結束時，我們擁有 3,330 萬美元的現金和投資。本季自由現金流使用量為 40 萬美元，去年第三季使用的自由現金流量為 1,140 萬美元。我們在第三季額外使用了 80 萬美元現金用於股票回購。

Q3 shows the power of my earlier comments about our focus not just on growing our subscription business, but also on the payment terms of that business, and while we expect Q4 free cash flow usage to be higher than the $400,000 we used in Q3, it will be significantly lower than prior quarterly trends. Last quarter, I mentioned we expected our free cash flow usage for the final 6 months of 2023 to be notably less than the $7.9 million we used in Q2 alone. We are reiterating that statement today.

第三季顯示了我先前評論的力量，即我們不僅關注成長訂閱業務，還關注該業務的付款條件，雖然我們預計第四季度自由現金流使用量將高於第三季度使用的40 萬美元，但將顯著低於先前的季度趨勢。上個季度，我提到我們預計 2023 年最後 6 個月的自由現金流使用量將明顯低於僅第二季度使用的 790 萬美元。我們今天重申這項聲明。

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

有關我們的財務業績、風險和業務前景的進​​一步討論，請參閱我們將向 SEC 提交的 10-Q 表格。我現在將把電話轉回給萊利，讓其作最後發言。

Thanks, Charles. We are seeing momentum across all areas of our business, and are hard at work continuing to increase that momentum as we create a market we are uniquely positioned to lead for years to come, a market that, at scale, has the opportunity to be as large, if not larger, than the other legs of the digital transformation stool.

謝謝，查爾斯。我們看到了我們業務各個領域的發展勢頭，並且正在努力工作，繼續增強這種勢頭，因為我們創造了一個我們在未來幾年中處於獨特地位的市場，這個市場在規模上有機會成為比數位轉型凳子的其他腿大，甚至更大。

With our recent expansion of Digimarc Validate in the digital domain, that opportunity has become significantly larger. And because we are unique in being able to bridge both the physical and digital worlds, not only has our TAM become larger, but our moats have become wider. As those of you with whom I've spoken over the years now, I think there's a really easy way to identify once-in-generation investment opportunities before they become obvious to the rest of the world. It's simply a matter of TAM, moats and execution.

隨著我們最近在數位領域擴展 Digimarc Validate，這個機會變得更大。由於我們能夠在物理世界和數位世界之間架起橋樑，因此我們的 TAM 不僅變得更大，而且我們的護城河也變得更寬。正如多年來與我交談過的人一樣，我認為有一種非常簡單的方法可以在千載難逢的投資機會對世界其他地方變得顯而易見之前識別它們。這只是 TAM、護城河和執行的問題。

As just mentioned, our massive TAM has become that much more massive, and our incredibly wide moats have become that much wider. In addition, as our financial results in the last few quarters combined with our comments about Q4 show, we're executing. We appreciate your interest as we continue to progress this generational opportunity. Diego will now open the call up for questions.

正如剛才所提到的，我們龐大的 TAM 變得更加龐大，我們令人難以置信的寬護城河也變得更加寬闊。此外，正如我們過去幾個季度的財務業績以及我們對第四季度的評論所顯示的那樣，我們正在執行。我們感謝您的關注，我們將繼續推動這一代人的機會。迭戈現在將開始提問。

(Operator Instructions) Our first question comes from James Ricchiuti with Needham & Company.

（操作員說明）我們的第一個問題來自 Needham & Company 的 James Ricchiuti。

Thanks for the additional information on ARR. The question I have is just with respect to the subscription revenue that you're seeing. Is there -- you see more activity from upsells on existing -- with existing customers, or with new customers?

感謝您提供有關 ARR 的更多資訊。我的問題只是關於您所看到的訂閱收入。您是否看到更多來自現有客戶或新客戶的追加銷售活動？

The impacts definitely come from both, but it's been more from new customers. We've had a couple of handfuls of really nice upsells that we highlighted on the last call this year, but the majority of the new revenue's coming from new contracts.

影響肯定來自兩者，但更多來自新客戶。我們在今年上次電話會議上強調了一些非常好的追加銷售，但大部分新收入來自新合約。

Okay. Got it. And then maybe a little bit of color on the, if you can, on the expected deal you alluded to with a company that's presumably tied to this rollout in France. I'm wondering, what's driving this? Is this an existing customer, someone you've been talking to?

好的。知道了。然後，如果可以的話，也許可以對您提到的與一家可能與法國的此次推出有關的公司的預期交易進行一些說明。我想知道，是什麼推動了這一點？這是您一直在交談的現有客戶嗎？

I'm sorry, Jim, you broke up. Are you asking the customer we alluded to being close to signing in France?

對不起，吉姆，你們分手了。您是在問我們提到的即將在法國簽約的客戶嗎？

Yes, I am.

我是。

Yes. So it's a new customer. It's a new logo. It's an incredibly impressive logo. And the point I was trying to make in that part of the call was this wasn't even a company that was listed in that initial press release, which I forget exactly, came out a couple of weeks ago, some time in that period of time. So I think their interest is in helping make a difference in the environment in France.

是的。所以這是一個新客戶。這是一個新標誌。這是一個令人難以置信的令人印象深刻的標誌。我在電話中試圖表達的一點是，這甚至不是最初的新聞稿中列出的公司，我完全忘記了，幾週前發布的，在那個時期的某個時候。時間。所以我認為他們的興趣在於幫助改變法國的環境。

And I think it, to your point, I was going to add -- if I could add on to what Charles was saying is, Jim, we had this conversation in the past of we expect to be enough cross-sell opportunity for decades. And so it's important to get those new logos. We view them as future upsell and cross-sells.

我認為，就你的觀點而言，我要補充一點——如果我可以補充查爾斯所說的話，吉姆，我們過去曾進行過這樣的對話，我們預計幾十年來會有足夠的交叉銷售機會。因此，獲得這些新徽標非常重要。我們將它們視為未來的追加銷售和交叉銷售。

And that's how we view Recycle, right, is that one of the wonderful things about how we've architected our platform and our products is very accretive. So we don't care where somebody starts their product digitization journey. Our goal is to guide them and be excellent guides at continuing their product digitization journey.

這就是我們對回收的看法，對吧，我們建立平台和產品的美妙之處之一是非常具有增值性。因此，我們並不關心人們從哪裡開始他們的產品數位化之旅。我們的目標是指導他們並成為繼續他們的產品數位化之旅的優秀嚮導。

Got it. Final question. Early days, I know, with Validate, but I'm just wondering what kind of traction do you anticipate from that over the next year?

知道了。最後一個問題。我知道 Validate 還處於早期階段，但我只是想知道您預計明年它會帶來什麼樣的吸引力？

It's hard to quantify it at this point. I can tell you we're having -- I chose the words very carefully of saying we're having conversations across the full gamut. We are talking to some very large, both on the content creator and content owner side as well as on the nodes side, on the detection point side, we are talking to the biggest of the big. We also expect that this will be a web sale opportunity, too, and so we have some smaller opportunities we're progressing as well.

目前很難對其進行量化。我可以告訴你，我們正在——我非常謹慎地選擇了措辭，表示我們正在進行全方位的對話。我們正在與一些非常大的公司進行交談，無論是在內容創建者和內容所有者方面，還是在節點方面，在檢測點方面，我們正在與大公司中的最大公司進行交談。我們也預期這也將是一個網路銷售機會，因此我們也正在取得一些較小的機會。

(Operator Instructions) Our next question comes from Jeff Van Rhee with Craig-Hallum Capital.

（操作員說明）我們的下一個問題來自 Craig-Hallum Capital 的 Jeff Van Rhee。

Just back to the France opportunity, I mean maybe just spend a minute or 2 more. At a very basic level, what -- how do you envision that rolling out? What kind of signings, what kind of pace of signings, what kind of vendors, use case?

回到法國的機會，我的意思是也許多花一兩分鐘。從最基本的層面來看，您如何看待這項推出？什麼樣的簽約，什麼樣的簽約節奏，什麼樣的供應商，用例？

Just kind of what do you anticipate over -- I mean, you can be as precise as you like, but just how does France play out and really start moving the needle on revenue? How do you sort of over-under? When does it really start to make a difference?

只是你的預期是什麼——我的意思是，你可以隨心所欲地精確，但法國的表現如何並真正開始推動收入的成長？你如何看待過度？什麼時候它才真正開始發揮作用？

Yes. The wonderful thing about France is it's the first Digimarc Recycle country we've opened, so I don't have -- I'd like to stick with what we know as opposed to what we think. I can tell you that when you asked who the customers are, they're going to be the brands in retail, so people putting plastic packaging into the French market.

是的。法國的美妙之處在於它是我們開設的第一個 Digimarc 回收國家，所以我沒有——我想堅持我們所知道的而不是我們所想的。我可以告訴你，當你問顧客是誰時，他們將是零售品牌，因此人們將塑膠包裝帶入法國市場。

So we'll see. We'll keep you all updated as we know more, but we're -- the -- and what is exciting about it is the initial interest are from the big companies. You saw a couple of the logos that were listed in the press release. That's the size of company we're talking to.

所以我們拭目以待。隨著我們了解更多信息，我們會及時向大家通報最新情況，但令人興奮的是，最初的興趣來自大公司。您看到了新聞稿中列出的幾個徽標。這就是我們正在談論的公司的規模。

You had the large win a couple of quarters ago and in there, you had some security printing customers in particular. How are those going? And any other follow-ons similar to those working through the pipe?

幾個季度前，您獲得了巨大的勝利，並且在那裡，您特別擁有了一些安全印刷客戶。那些進展如何？還有其他類似於透過管道工作的後續措施嗎？

Yes. So there is follow-on in the pipe, absolutely. When you said how is that going -- that was what I referenced, if you remember that customer who signed up or is using Illuminate to build 3 products. One of them is a deposit return scheme.

是的。所以管道中絕對有後續。當您說進展如何時，如果您還記得註冊或正在使用 Illuminate 建立 3 個產品的客戶，這就是我所提到的。其中之一是存款返還計劃。

And as I mentioned in the prepared remarks, I was in-country maybe about a month ago, a few weeks ago, maybe about a month ago, and initial production of their logo is rolling out, being produced on very high volume, very iconic products. So it's going well.

正如我在準備好的發言中提到的，我大約一個月前，幾週前，也許一個月前在國內，他們的標誌的初步製作正在推出，產量非常大，非常具有標誌性產品。所以進展順利。

Okay. And then just lastly, maybe open-ended because I know you said you tried to address your comments on the call for questions people are asking, but maybe just describe what's in the pipeline, what are you seeing, and how has that evolved in the last 6 months, if it wasn't already touched on.

好的。最後，也許是開放式的，因為我知道你說過你試圖就人們提出的問題的呼籲發表評論，但也許只是描述正在醞釀中的內容，你看到了什麼，以及它是如何演變的過去6 個月，如果還沒觸及的話。

You're talking about -- you mean product mix? Or are you talking -- could you be a little more specific?

你說的是產品組合？或者你在說話──你能說得更具體一點嗎？

Deals that are late stage in the pipeline now versus 6 months ago.

與 6 個月前相比，現在處於後期階段的交易。

You mean how does it relate to where it was 6 months ago?

你的意思是它與 6 個月前的情況有什麼關係？

Yes.

是的。

It's growing. I mean, I think you can look at our ARR growth, right? We grew ARR 54%. And so there's -- and if you listen to -- if you look at what I said, we expect ARR growth to be greater in Q4 on a year-over-year basis than it was in Q3.

它正在增長。我的意思是，我想你可以看看我們的 ARR 成長，對吧？我們的 ARR 成長了 54%。因此，如果您聽聽，如果您看看我所說的話，我們預計第四季度的 ARR 年成長率將高於第三季。

Thank you. There are no further questions at this time. I'll hand the floor back to Riley McCormack for closing remarks.

謝謝。目前沒有其他問題。我將把發言權交回給萊利·麥考馬克作結語。

Well, thank you, Diego, and thank you, everybody, for joining us today. We hope you have a great rest of your day.

好吧，謝謝你，迭戈，也謝謝大家今天加入我們。我們希望您度過愉快的一天。

Thank you. And with that, we conclude today's conference call. All parties may disconnect. Have a great evening.

謝謝。我們今天的電話會議到此結束。所有各方都可以斷開連接。祝您有個美好的夜晚。