Digimarc Corp (DMRC) 2021 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Digimarc update call. (Operator Instructions) I would like to hand the conference over to your speaker today, Mr. Bob Chamness. Please go ahead.

Well, thank you, Ern. Welcome to our conference call.

Riley McCormack, our new CEO; and Charles Beck, our CFO, are with me. On the call today, Charles will provide some preliminary financial highlights for Q1 and Riley will discuss the retirement of Bruce Davis and his appointment as CEO.

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.

Charles will now provide a brief financial update.

Thank you, Bob.

Although we are still in the process of closing our books and analyzing results for the quarter, we do want to share some preliminary financial highlights for the first quarter.

We expect retail bookings to be $2.1 million for the first quarter of 2021, which would represent an increase in bookings of 14% on a year-over-year basis and 58% on a sequential basis. It would also represent our best retail bookings quarter ever. As a reminder, retail bookings for the full fiscal year 2020 were $5.4 million. We also expect total revenue for the fourth quarter will meet or exceed the highest published Wall Street analyst estimate of $6.25 million.

We remind you these Q1 results are preliminary as we are still in the process of completing the quarter financial review. Until that work is complete, the fluidity of the situation limits our ability to say anything more at this time. I would please ask that you refrain from asking questions during the Q&A session about financial results or business progress. We will provide our customary quarterly update on our earnings call, scheduled for April 28.

I will now turn the call over to Riley.

Thanks, Charles.

As I assume most of you have seen by now, Bruce Davis has retired as CEO of Digimarc, effective earlier today. Bruce has led this company through incredible maturation and many successful iterations over the years. And I want to publicly recognize that where we are today and where we will be tomorrow is based in a very big way on his vision, on his hard work and on his leadership. I have no doubt this company is going to change the world, and a large, large part of that credit will always rest with Bruce Davis.

I speak on behalf of the company and the board when I thank him for all he has done, and I wish him nothing but the best in his future endeavors. I know he will continue to be a resource and advocate for the company. And I know I have big shoes to fill. I will have more to say on how I plan to do that in a minute.

But first, I want to address our 3 most important stakeholders individually.

First of all, to the employees of Digimarc. I know we just spent an hour together on the [All Hands] team. But as I mentioned during the meeting, there's something I held back because I wanted to use this forum to say something very private to all of you in a very public way so that a much larger audience can hear me say it.

We are not an asset-light company, we are an asset-rich company. And our assets are all of you. I have only one thing I would change in that letter I sent all of you almost 6 months ago. It was that I did not write the whole thing in caps, using giant, bold and an underlined font. Everything I wrote at that time I still believe. I just had no idea to the degree to which it was surprisingly understated. And the areas that we get the biggest increases in font size, bolding and underlining would be the parts I wrote about you.

What I've learned about the business, the opportunity of the technology, that has all been a nonstop journey of absolute excitement for me, candidly mixed with the crazy impatience for the world to get a more complete view into what you all are doing. But by far, the area that has made the greatest impression on me and is maybe the most excited about this company's future is all of you. I am honored and excited to roll up my sleeves and throw in alongside of you.

As a quick aside as a group, you all are a top 5 shareholder in this company. I hope you all listen closely to what I'm saying to you, fellow owners, throughout the remainder of this call, and hold me as accountable as I know they will, because those messages are directed to you as a top ownership group in our company as well.

Second, to our partners and customers. This is a change of CEO, not a change of strategy, diligence, focus or, importantly, a change in our single true north, wanting to do right by you. The faces you see on your team meeting tomorrow will be the same faces you saw yesterday. The platform you are using and the work with which you are entrusting us will be held at the same exacting standard of excellence to which they've always been held, because the people supporting you tomorrow will be the exact same people that were supporting you today.

Importantly, besides consistency of interaction and support, I also want to stress we are not entering into a period of stasis or paralysis. We are just open for business and is excited to do everything we can to delight you going forward, as we have been up until now. This transition will be seamless.

Despite my promising that, I understand you might still have questions. And if you do, any of us, myself especially, are always available by video conference or if you prefer by plane.

I again want to use this opportunity to say something so that a much broader audience can hear it and hold me accountable for it. The success of this transition will be judged almost entirely by how you, our customers and our partners perceive it. I look forward to that feedback, as I do any in all other feedback you are kind enough to share with us at any time.

And finally, to the owners of our company. You are so very right, in my opinion, to have the faith and confidence you do in this investment. Obviously, as the largest shareholder of the company, I share your excitement. As I know so many of you already, I feel this is less of an introduction, and more chance for me to say how much I have appreciated your thoughts and collaboration over the years, and that nothing has changed in my eagerness to continue the dialogue. But I don't yet know all of you, and I can't wait for that to change. And above all else, I look forward to our proving all of you very right in your decision to risk your capital in support of what we are doing.

Coming back to the shoes I have to fill, I am sure at least some of you are wondering where the word interim is ahead of the title. It is not there because the Board believes, and I 100% agree is redundant. Every single CEO is an interim CEO, holding the position until it's time for someone else to take the title. However, by adding this redundancy, what is often really signaled is a pause. And so I want to be very clear. There is no pause to the abundant activity or decision-making at Digimarc. We are in the cusp of realizing the rewards wield into existence by the dedication, inspiration and perspiration of our incredible team. And there is just too much momentum right now to risk sending the signal to any of our stakeholders that we are taking in an indefinite timeout.

Whenever the day comes for me to pass along the CEO title, I can promise you 2 things. We will have found someone absolutely amazing. And he or she will have the support and lead and time necessary to hit the ground sprinting, so that transition will be as seamless as this one will be.

Solving for a person's motivation normally provides almost perfect information with which to predict their actions and biases. I am this company's largest shareholder and self-proclaimed largest cheerleader. I thus believe attempting to determine my motivation is a pretty simple exercise. All I care about is this company's unbridled and complete success. That should inform how I view many, many aspects of this business, chief among them, who has the title of CEO?

I also think it makes sense to spend a bit of time talking about what I believe a CEO's role is, as that too is germane to this conversation. But before I get to that, it is necessary to share some background thoughts.

I know there's been a lot of focus and excitement externally about the new Board, and I understand and share that excitement. And all stakeholders should take great pride in Digimarc's Board as well as great comfort.

Our Board has 2 paramount responsibilities. The first is to provide the long-term vision and guidance necessary to realize the company's mission. And the second is to act as -- and the second is to act as stakeholder representatives, and providing CEO oversight, strongly representing the views of, yes, shareholders, but also customers, employees, partners, and all other groups that have a vested interest in that company. They are in charge of making sure management, specifically the CEO, is doing right on a daily basis.

Rest assured you are correct in being excited by your representatives on the Board, because they have the vision, the experience, the dedication, the qualifications, and importantly, the mandate and the fortitude to be right by the company, and thus by all of you. And moreover, we're not yet done in our augmentation of this group.

But what gets less attention, which I believe is a giant mistake, is the leadership team inside the company. Something I plan on rectifying by getting the team in front of you soon and often, because I want you all to see for yourselves why I'm so excited by the talent here. And this is important because of what I believe the 3 paramount responsibilities of any CEO are.

#1, source and retain the best possible people for each and every role. #2, let those people do their jobs. The CEO should simply be a resource to be used as needed, a battering ram to knock down walls, a backboard off of which the team balances ideas in their unending quest to ultimately come to the best conclusion, and occasionally, a sticky note reminding everyone of the company's mission and true north. A CEO should do everything possible to support the team in doing their jobs, because if the CEO has done his or her job [and hackle], those people will be better at their jobs and the CEOs at their jobs. It is not a decision between lead, follow or get out of the way. 99 out of 100 times, the best way to lead is by getting out of the way and taking any impediments along with you.

And then finally, CEO job responsibility #3, take ownership of any failures. This isn't gallantry, but reality. An open-ended growth company like Digimarc is not moving fast enough for taking enough risks if it doesn't occasionally fail. But with a caveat, those failures have to be fast.

Making mistakes isn't scary. In fact, mistakes can be opportunities for profound organizational growth. The reality is almost every victory stands on the shoulders of some prior defeat. What is scary, however, is not quickly identifying when a mistake has been made and then quickly getting back on course. And for those setbacks to be quickly fixed, someone has to take ultimate ownership of them. There has to be a single neck to choke to drive course correction. And in a highly functioning organization, that neck is always and invariably the CEO's.

So if you were wondering what exactly it is I see my role to be, it's going to be making sure we have the best possible people on the team. It's going to be then getting out of their way and letting them do their jobs, while acting as a resource to make their jobs easier and their results better. And then finally, I'm going to be the neck to choke if there are any issues that are not quickly turned into learning opportunities, being safely dissected in the coroner's office.

I want to stop here in discussing the transition because I also want to use this call to give you my candid assessment of where the business stands today. Hopefully, I addressed the biggest questions on your mind regarding today's announcement. But we'll also be having a bit of a different Q&A at the end of these prepared remarks so we can dive back into the subject then if anyone wants.

And I want to start off the sharing of my assessment of where the business stands by stating how I view assessments of the business with the owners of that business should always be shared, a view informed by 23 years of sitting on your side of this conference call.

I told someone I was speaking with recently that the reason Wall Street is so skeptical is because they're constantly lied to. If you work on Wall Street and aren't skeptical, you're probably out of a job. I know firsthand that what investors want is consistency of message when possible and transparency and honesty at all times. While so obvious to allocators of capital, what I think a lot of management teams fail to realize is that, besides just being the right thing to deliver to the owners of the business, those that fully internalize the scheme and very real benefit besides just doing right, they attract the right type of investors.

But while the above is important, it's also just table stakes. Ultimately, it is results that matters. Ultimately, it is results that determine the worth of a management team for sure and also eventually a company. It is the final and only metric by which a team and the company is rated.

I remember so clearly when Jeff Bezos and Amazon and Reed Hastings and Netflix were considered to have really, really long out of success by really, really smart investors. Those views didn't change because Jeff and Reed got better at IR and PR. They changed because Amazon and Netflix revolutionized their massive industries, and along the way, delivered years and years of jaw-dropping results. There are plenty of ways to lose investors' trust and goodwill, but only one way to earn them. Results are all that matter.

If you are on this call as an investor, you were listening in to decide if Digimarc and its team deserves your faith. That is your job, and it is never ending.

To that end, let me share with you my thoughts on the matter, in case they are of interest to you as your stress testing yours. I had wildly high expectations for the opportunity facing Digimarc before I made my investment. And for those of you who don't know my history with this company, those expectations are almost entirely based on the heavy independent due diligence I've done since early 2014, talking with partners, customers and other ecosystem members.

Those investors with whom I've spoken over the years will know that I was not just a connector and hub on the investor side, but also in the ecosystem, as I got entrenched in that web early, and thus my network grew as the overall ecosystem grew. Then when I became an insider 6 months ago, I was able to peel back a layer of opacity and see with my own eyes the beehive of current activity, that excitement grew in a way that is hard to adequately or convincingly convey.

The third step in my journey occurred as I got closer and closer to the team. Since joining the Board, I've dedicated myself full time to this opportunity, committing myself without reservation to exploring every corner of the castle. This has given me a first row seat to the evolution of the organization and the talent that is driving it.

This evolution has accelerated very recently as we moved to a product-driven go-to-market strategy, fueled by decisions driven by data versus gutter guesses. It's still being made at the speed necessary for a small nimble growth tech company sitting at the foothills of open-ended growth. This evolution is something I'll talk about more on our Q1 call. And this third step in my journey is without a doubt the step that increased my confidence the most regarding our ability to truly deliver and squeeze every last drop of opportunity [at risk] potential.

And it wasn't just what I learned about the odds of success that has made me excited, but also what I realized at the business model itself. There were certain characteristics that franchise companies have that sets them apart from the super interesting but never going to be transcendent product companies, characteristics that not only make the business bigger when it grows, but also make it better. And Digimarc checks so many of these boxes: recurring revenue; the presence of a network effect, or in Digimarc's case, [3] network effects; the presence of wide and multilayered moats augmenting any network effects; the eventuality of a massively fragmented customer base, taking customer concentration risk to nil; extremely high contribution margins; organically-driven sales; emerging ecosystem-driven TAMs; large existing TAMs; an unexploited monetization levers on the existing business, which allow customers to realize more value, a company to recognize more revenue and the relationship to grow more sticky.

I want to say the following very clearly because I want to be on record for having said it. I believe, without reservation, this is a generational opportunity. And I believe it has the human and technological capital in place to deliver on the massive opportunity, period, full stop.

And beginning with the Q1 call, I know the obligations on me to help you, my fellow owners of this business, understand why exactly this I feel this way. This knowledge sharing starts with consistency of message. It continues with honesty and transparency. And that even when we reach the point of geometrically compounding bookings, which is a result we're all patiently waiting to see, my job is to continue this messaging so you are as educated as you can be, good and bad, on the business that you own.

Here's the thing. As I said above, as I've had the opportunity to dive deeper and deeper into this business, I've become more and more convinced this company will change the world in many different ways. Make no mistake about it. I covenant to all of you, we'll be honest and transparent, good, bad and ugly, because it's the right thing to do and the only fair way to treat the owners of our company. But the fact that transparency isn't always just a disinfectant, but, as it has been for me at least, can also be a sweetener, makes me even more eager to begin that journey with all of you.

And to preview a bit of the communication I promised to begin delivering with the Q1 earnings call, my conviction in this company's wild success is so high because it is multilayered.

First, we have multiple, very real, very large opportunities being pulled by the ecosystem versus pushed by us, all of which individually are very high conviction. Moving up a layer, the very fact there are multiple opportunities and they're completely independent of each other means all of these opportunities would need to independently fail before that's even a risk for -- before there's even a risk that's our fate, too. And then finally, moving up another layer, similar opportunities are continuing to be presented, and I can't see any reason why that changes. It's a 7.6 billion people in the world who have not yet thought about what Digimarc can do to make their company or their industry more efficient, hear about us for the first time and truly understand the platform nature of our offering.

One of the phrases investors love to use is multiple shots on goal. Normally, however, they're not even discussing the right sport. That phrase is often used to describe a company with a finite set of really, really long odds opportunity, oftentimes interrelated, so it's more akin to a single Hail Mary with all eligible receivers being clustered in hopes one comes down with the ball.

We instead actually have a series of uncorrelated shots, each with extremely high odds of conversion when examined in isolation. The fact there's almost no intersection to the unit increases our odds that much more. And on top of that, we have wonderful allies to keep rolling new balls on to the field. And while my expectation is we bury each of them firmly in the back of the net, the reality is any single one of them by themselves is enough to make our fans extremely happy. But make no mistake about it. The team's focus is on drilling every shot and becoming a multi-decade dynasty.

That's just for our prepared remarks. Now we'll open the call to hear your thoughts and try our best to answer your questions.

Because I realize there might be a lot in your minds, we have not set a hard stop, and we'll be opening up the queue to anyone interested in saying their piece or asking their question. I do ask that in return for our showing you the respect you deserve, by believing that everyone should have the right to speak up on these calls, you mirror that respect by being thoughtful in your thoughts, questions or criticisms. To be clear, that is not to say take it easy on us. There is no question, criticism or thought shared professionally that we don't want to hear now or in the future in public or in private. I just ask you do indeed keep it professional so we continue to allow for future conference calls to end with the same style Q&A. And lastly, please let us know to whom you're addressing your question so we know which one of us you'd like to answer.

(Operator Instructions) There are no question at this time. Presenters, you may continue.

All right. Well, I guess the late notice either has kept people away from the call not knowing about it or so many questions to ask. You guys know how to get a hold of us for all the investors we've been communicating for years now. And for those of you I don't know, obviously, you guys know Bob. We stand by as always and ever will be to answer your questions.

Charles or Bob, you guys want to say anything?

No. I'm good. Look forward to the next call in 16 days or so.

Awesome.

I don't have any further. Thank you, Riley.

I just noticed there's a question now in the queue.

(Operator Instructions)

Robin Knipp, Janney Montgomery Scott. My question is for you, Riley. Can you give us an overview of how we should think of the sales culture at Digimarc? Where it's come from, where it is, and where do you see it going?

Yes. Charles -- or Robin, it's a great question.

If I might, if we could wait until the Q1 call. So I alluded to the fact that there's a very recent evolution in our go-to-market strategy. That is something that we're working on right now.

Just so you know, there will be a presentation to the Board this coming Sunday on the final thoughts on that presentation. Our very qualified Board will have a week to think about it, to kick it around, to ask tough questions, to augment it. So we can have a really robust conversation in our scheduled Board call, which is April 26. And that was the [goal] that what I was trying to allude to early, but I wanted to come back to the Q1 call -- on the Q1 call and give you guys a lot more insight into that. It's a great question. It's a relevant question. And I already plan on talking about it in 16 or -- yes, 16 days. So if you can wait 16 days.

There are no further question at this time. You may continue.

All right, guys. Well, we appreciate your time. We appreciate your faith. We're going to go earn it. Thanks a lot.

This concludes today's conference call. Thank you for participating. You may now disconnect.