Digimarc Corp (DMRC) 2020 Q4 法說會逐字稿

Good afternoon, and thank you for participating in today's conference call. Now I will turn the call over to Chairman and CEO of Digimarc, Mr. Bruce Davis. Sir, you may proceed.

Thank you. Good afternoon, everyone. Welcome to our conference call. Charles Beck, our CFO is with me. We also have Bob Chamness, our EVP in charge of sustainability joining us today to provide an update on progress and prospects in this increasingly important use of our platform in plastics recycling.

On the call today, we'll review Q4 and fiscal 2020 financial results, discuss significant business developments and market conditions and provide an update on progress and execution strategy. We've posted these 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. Charles will now comment on our financial results. Charles?

Thank you, Bruce. 2020 was an extraordinary year, full of unforeseen challenges and opportunities. We started the year with a focus on retail store operations, then along came COVID-19. The pandemic caused the reprioritization of resources at retailers that impeded progress with thermal labels and new retail account acquisition. Although revenues increased year-over-year, we did not hit our growth goals for bookings.

The effect of the pandemic was not all negative. New customer and partner opportunities emerged along the way with unexpected sources of financing, that Bruce discussed during the Needham Conference in January, leading our company to come out of the year stronger and better positioned than when we entered it.

Revenue for the fourth quarter was $5.6 million, up 4% from Q4 last year. Service revenue increased 7% from $2.7 million to $2.9 million due to growth in services provided to government and retail customers. Subscription revenue increased 1% from $2.6 million to $2.7 million, reflecting the impact of new bookings, offset by the impact of the renegotiated contract with a retail supplier partner in the first quarter of 2020 that we've discussed on prior calls.

Revenue from government was up 10% to $3.3 million driven by growth in both subscription and service revenue. Revenue from retail was down 8% to $1.4 million, reflecting the impact of the renegotiated contract I referenced a moment ago, offset by higher service revenue. Revenue from media was up 6% to $900,000, reflecting growth in subscription revenue.

Retail bookings were $1.3 million, around the same level as Q4 last year. The impact of the pandemic continued to have an effect on bookings in Q4. As we enter 2021, we are encouraged by a growing pipeline of opportunities in supply chain and recycling solutions. We entered into several new contracts during Q4, most of which were early production on pilot projects. While these contracts did not contribute significantly to bookings during the quarter, we expect these contracts will grow into larger revenue streams in coming quarters.

Retail bookings included several notable developments. We started work on our very first Golden Thread project in recycling. Bob Chamness will elaborate later on the call. We signed our first contract with a customer in the tobacco industry, who is using the Digimarc platform for product authentication to deter the selling and usage of counterfeit cigarettes. We continued a customer-funded study of the commercial viability of laser engraving serialization with a global brand and its suppliers. And we generated follow-on bookings for the variable data printing solutions used in the traceability and brand protection use cases that I've referenced on prior calls. In media, we entered into a 5-year extension with a customer using the Digimarc platform for monitoring and reporting music usage.

Gross margin for the quarter increased to 69% from 66% last year due to improved service margins. Service margins were 61%, up from 52% last year due to a favorable mix in billable expenses with higher labor and lower nonlabor expenses and lower other costs. Subscription margins were 79%, down from 80% last year.

Operating expenses were $11.7 million, a decrease of 6% from $12.4 million in Q4 last year. Operating expenses were lower, reflecting lower travel, consulting and trade show costs. We expect operating expenses to range from $12.8 million to $13.2 million in the first quarter. The expected increase in expenses over the fourth quarter reflects the impact of routine annual compensation adjustments for our employees, our 2021 hiring plan, which includes 2 new senior executive positions and recurring fiscal year-end related costs.

Net loss for Q4 was $7.8 million or $1.27 per common share versus a net loss of $8.7 million or $0.73 per common share in the fourth quarter last year. Our net loss per common share calculation was impacted by an accounting adjustment required under U.S. GAAP, called a beneficial conversion feature, which represents the conversion premium on the preferred stock issued to TCM Strategic Partners that was later converted into common stock in December upon shareholder approval.

The conversion premium negotiated in the deal was 15%, the same as the discount for the common stock. However, the preferred portion of the transaction took a couple of extra days to close, by which point, the stock price had appreciated significantly, thereby creating a larger conversion premium for accounting purposes. This is a nonrecurring and noncash adjustment to earnings per share. Excluding the impact of this adjustment, our net loss per common share would have been $0.51.

2020 revenue grew 4% despite the pandemic effects. Service revenue increased 5% to $13.9 million due to growth in services provided to government and retail customers. Subscription revenue increased 4% to $10.1 million, reflecting the impact of new bookings, offset by the impact of the renegotiated contract with the retail supplier partner I mentioned earlier.

Revenue from government was up 4% to $14.9 million in 2020 driven by growth in both service and subscription revenue. Revenue from retail was up 6% to $5.6 million, reflecting the impact of new bookings, offset by the impact of the renegotiated contract already referenced. Revenue from media was up 2% to $3.5 million, reflecting growth in subscription revenue.

Retail bookings were $5.4 million in 2020 versus $5.3 million in 2019. For the year, gross margin increased 67% from 65% last year due to improved service margins. Service margins were 58%, up from 55% last year due to a favorable mix in billable expenses with higher labor and lower nonlabor expenses. Subscription margins were flat at 79%.

We held operating expenses essentially flat with 2019 at $48.9 million. Payroll costs were higher year-over-year due to routine annual compensation adjustments for our employees and $800,000 of nonrecurring severance costs associated with the corporate restructuring we announced in July. These costs were offset by lower travel, consulting and trade show costs in 2020.

Net loss per common share for 2020 was $3.41 versus a net loss per common share of $2.79 last year. Excluding the impact of the adjustment for the beneficial conversion feature I referenced earlier, our net loss per common share for 2020 would have been $2.52.

We ended the year with $77.7 million in cash and investments, the highest balance in nearly 18 years. On October 1, we received the remaining $17 million of proceeds from the $53.5 million investment made by TCM Strategic Partners. On December 10, the 17,000 preferred shares issued to TCM as part of the transaction were converted into 1.2 million common shares upon approval by shareholders.

Our application for forgiveness of the $5 million Paycheck Protection Program loan is still in the process of being reviewed by the Small Business Administration. We do not have any visibility on when they may complete their review. For further discussion of our financial results and risks and prospects for our business, please see our Form 10-K that we expect to file shortly.

Bruce and Bob will now comment on significant business developments, market conditions and execution strategy.

Thanks, Charles. I provided a 2020 retrospective and overview of keys to success for 2021 6 weeks ago at the Needham Conference in mid-January. The presentation is available on our website, much has happened since then.

Beginning at the Board level, I'm very excited to welcome Sheela Zemlin to our Board of Directors. Her professional accomplishments, commitment to making a difference in the world and thoughtful team-oriented leadership will inspire our employees and other stakeholders. I expect that Sheila's 2 decades of experience in leading high-growth digitally enabled companies will invigorate and inform boardroom discussions about resource allocations, market priorities and opportunities to scale the business.

In another important Board development, Riley McCormack has been elected lead director. He inherits this role from Jim Richardson, a very capable leader, who will remain on the Board and continue to serve on the Audit Committee. Riley will be a strong advocate for shareholders' interest, enhancing our shareholder engagement. He and I have been enjoying for some time now an extraordinary collaboration on how to best accelerate adoption of the Digimarc platform, instill a high-performance culture and build upon our values consistent with the environmental and social benefits that our platform is delivering to customers. In his new role, Riley will work closely with me, other Board members and our management team to strengthen the company's commitment to ESG practices, communicate with and represent the interest of the shareholder community and seek ways to enhance overall Board and company operations.

The company's organization continues to evolve with the maturation of execution of strategy, growth in size, breadth and sophistication of our supplier ecosystem and the resultant expanding universe of applications built on the platform. The organization has changed dramatically in the past few years as we evolve from an IP licensing company to a customer-centric software and services supplier. The pace of change has accelerated. I'm proud of the versatility, loyalty and focus on our mission of our employees and leadership team, as such changes are always challenging, especially when done in the context of the pandemic, wildfires and ice storm that we've endured in Oregon over the last year.

Leadership must evolve consistent with the stages of development of our platform and the market it serves. Recent changes include the departure of our Director of Corporate Communications, who we have begun the search to replace; and the addition of a Chief Product Officer and Chief Revenue Officer. I'm very excited about the seasoned executives with successful track records that are moving into the senior ranks of our leadership. The executive changes are intended to strengthen the relationship between product development and sales, improved accountability for customer outcomes, accelerate our transition to the cloud and create better alignment between the organization and the changes in demand profiles we're observing.

Opportunities to improve auto identification span consumer product life cycles from manufacturing to recycling. The natural ebbs and flows of opportunities and allocation of resources across the supply chain, including retail store operations, was disrupted by the pandemic. It created a substantial temporary shift in demand, leading us to lower our spending and shift our resources from retail store operations to other areas of the supply chain. Whereas we began market development with fast, easy checkout, aiming to reduce long lines at checkout, the pandemic made those lines shorter. It also changed the shopping experience in many ways, leaving fewer shoppers to shop less often, spend less time in the stores when they do and buy more on each visit. Other shoppers moved online. Others rely on contract shoppers and store associates to do the work and have purchases delivered to their homes or for curbside pickup. These changes don't reduce the relevance of speed, convenience and accuracy of product identification and shopping. The new shopping model adds safety to the paradigm. The modern consumer wants low prices, efficiency and safety.

Models of demand generation and product differentiation are changing. Environmental and social concerns are increasingly important. Associate responsibilities are expanding with safety and efficiency as top of mind concerns. We are embracing all these changes.

Janey Whiteside, Walmart's EVP and Chief Customer Officer recorded at the virtual NRF about a high concern on associate well-being, creating a focus on low-touch approaches to their work. She also noted the financial effects of the pandemic put even more emphasis on affordability, leading to share gains by private brands. She also observed that stores have been rapidly transformed into hybrid warehouses, localizing pick and pack and rapid delivery of groceries. Whiteside emphasized that stores aren't going anywhere. People still want to shop in stores, but they're looking for a new generation of shopping experiences. Corporate values are front and center. Trust is a cornerstone of customer loyalty. Again, we can help.

More recently, at the Walmart Investment Community meeting, company leadership talked about the need for more innovation and speed, building a new customer-centric business model, serving them in new ways and monetizing assets in ways not done before. Low prices, convenience, efficiency and safety were the key themes in their remarks. We, at Digimarc, see in these changes greater opportunity than ever to help Walmart continue their omnichannel and digital transformation while maintaining their operating efficiency advantages over competitors.

Our platform improves performance throughout the supply chain from production to recycling. As the disruption of store operations by the pandemic slowed progress, it created heightened demand further up the chain, in production and distribution, giving rise to new customer relationships in new industry segments, focused on brand protection, counterfeit deterrence, channel management and general supply chain transparency.

In another very positive development, AIM announced the formation of HolyGrail 2.0 in late 2020, describing it as "a pilot project with the objective to prove the viability of digital watermarking technologies for accurate sorting and consequently higher quality recycling as well as the business case at large scale." We understand that participation has grown from 85 to more than 120 companies and organizations.

A few weeks ago, we received the comprehensive work plan from AIM with detailed work streams, deliverables and schedules. Bob Chamness, the executive in charge of this area, will now provide an overview and update on market conditions, AIM HolyGrail 2.0 and the Circular Economy initiatives we're engaged in. Bob?

Thank you, Bruce. It's my pleasure to join the call today to share recent developments and plans for our recycling and sustainability initiatives.

If the pandemic showed nothing else, it has shown the critical role that plastics play in improving our everyday lives. For many applications, there's simply no alternative that performs as well. And yet, plastic waste is a growing challenge to our environment, causing harm to our oceans, waterways, air quality and landfills. The issue then is not plastic itself, but our relationship to plastic.

Government scrutiny of plastic waste continues to grow with new plastic directives coming from the European Commission, including a European tax on nonrecycled plastic waste. The United Nations Plastic Treaty proposal initiated by the Ellen MacArthur Foundation and the Worldwide Fund -- World Wildlife Fund, calls for a global agreement, setting goals and binding targets, together with national action plans and consistent measurement.

The proposed treaty seeks to enhance investment planning, stimulate innovation and harmonize policy efforts. The U.N. Global Compact, the world's largest corporate sustainability initiative, is similarly focused on eliminating plastic waste in the environment.

In the U.S., several state governments are moving forward with Extended Producer Responsibility regulations, frequently known as EPR, which provides funding for upgrading trash sorting and creating green jobs. EPR fees are used to provide incentives for consumer brands to use more recyclable materials and reduce their packaging footprints.

It is estimated that more than 30% of product packaging contains plastic. Corporations are stepping up to do their part. There are more than 500 signatories to the Ellen MacArthur Foundation's New Plastics Economy Global Commitment, where they have pledged to increase the use of recycled plastic. The signatories include well-known consumer brands such as L'Oreal, Mars, Nestlé, PepsiCo, the Coca-Cola Company and Unilever.

Government and private initiatives alike seek to reclaim post-consumer waste plastic and recycle it into new products, creating a Circular Economy with goals to reduce the impact of post-consumer plastics on our environment while reducing use of virgin plastics made from hydrocarbons, such as oil and gas, therefore, reducing our carbon footprint. These goals cannot be achieved with legacy technologies. There is a significant gap between what can be recycled today and the level of recycled content needed to achieve the published targets for the years 2025 and 2030.

Digimarc played a central role in the success of the New Plastics Economy's original HolyGrail initiative. The initiative scoured the technology landscape for means to improve the quantity and quality of recyclable material in post-consumer waste streams. Digital watermarking and chemical traces were identified as potential solutions.

Digimarc Barcode was determined to be the more robust solution, so much so that a new initiative was formed, known as HolyGrail 2.0 whose sole mission is to "prove the viability of digital watermarking technology for accurate sorting and consequently higher-quality recycling as well as the business case at large scale."

The 29 cross value chain collaborators in the original initiative were also impressed with the versatility of our platform to address a host of other operational issues faced by manufacturers and retailers, such as parts matching, counterfeit deterrence, supply chain efficiency, food waste reduction, digitization of store operations and increased opportunities for consumer education and engagement.

HolyGrail 2.0 formally announced (sic) [launched] this past September with 85 members. It was facilitated by AIM, the European Brands Association, representing 2,500 corporate members. A number of work groups have been formed to determine the path forward in all material aspects of integration into the ecosystem.

HolyGrail 2.0 membership has grown by nearly 50% in 5 months to over 124 participants, representing brands and retailers, printers and plastic mold converters, recycling sorting equipment manufacturers, plastic resin producers, industry trade associations and NGOs.

A link to a chart showing the current members who have elected to be identified publicly is included in the script. Recent notable new members include European retail giants Kaufland, Lidl and the Schwarz Group, along with key industry suppliers, Arburg, CCL, Esko, Fuji Seal, Sonoco and Sun Chemical.

As an industry-wide collaboration, HolyGrail 2.0 is open to all suppliers of digital watermarking. We are pleased to report that Digimarc has been chosen as the supplier of enhanced materials and detection software for the initial prototype sortation test phases. We are entering into licenses and developing relationships with 2 of the largest manufacturers of high-speed sortation equipment, TOMRA and Pellenc, who together provide over 80% of the global market for optimal sorting lines in Material Recovery Facilities, commonly known as MRFs and recycling plants. TOMRA, a public company headquartered in Germany, hosted the 2 demonstrations of HolyGrail that showed the superiority of digital watermarking in identifying materials.

We have begun discussions about licensing with other optical system and component providers in Europe and North America. COVID-19 has impeded progress in all respects of the initiative. Nevertheless, we are making progress, and we are impressed with the eagerness of participants to produce compliant packages for use in the HolyGrail 2.0 project. Production of printed labels, flexible pouches and films and 3D rigid plastics is underway.

We are making progress with industry leaders in rigid plastic packaging, including PACCOR, Berry Global and Logoplaste. PACCOR is notable in that we have been collaborating with them for nearly 2 years. They are a global supplier, the second largest supplier of rigid plastic in Europe and the largest supplier in Eastern Europe with operations in 15 countries.

PACCOR is committed to sustainability and has been an ardent supporter of Digimarc Barcode and an amazing innovator in application of our platform to plastic packaging. They were the first company to successfully apply Digimarc Barcode to rigid plastic packaging services.

HolyGrail 2.0 is not the only initiative in Europe that will demonstrate our capabilities to improve plastic sortation and create a more robust circular economy ecosystem. We are in discussions to create a number of Golden Threads that will test performance in different countries and industry sectors. One such agreement with a large European nation's consumer waste collection provider was entered into in Q4 2020. The program is designed to develop and test strategies to increase collection through improved consumer engagement and increase the quantity and quality of recovery of recyclable material. The program is underway. We have similar Golden Threads in early stages of development in 2 other countries.

The European Commission is monitoring progress. Their recently published final report on the "Effectiveness of the Essential Requirements for Packaging and Packaging Waste and Proposals for Reinforcement" states that a review will be carried out in 2025 with a view to require digital watermarking as a legal requirement. The report states that "there are new technologies being developed that would make identification of recycled amounts by the individual functional unit of packaging highly efficient and thus, the production of data much more cost effective and achievable. The approach would utilize digital watermarking technology and sensor equipment to register the number of individual functional units of packaging sorted through sorting plants."

The European Parliament's New Circular Economy Action Plan adopted on January 27, 2021, also addressed digital watermarking. Quoting from that plan, the Parliament "urges the commission and the member states to enable digital technologies, such as blockchain and digital watermarking, and make them interoperable so that they can support the development of the circular economy through the tracking, tracing and mapping of resource use and product flows through all stages of life cycle."

Furthermore, the proposed Sustainable Product Policy Initiative of the European Commission calls out for "establishing EU rules for setting requirements on mandatory sustainability labeling and/or disclosure of information to market actors along value chains in the form of a digital product passport." Our data carrier is often referred to in the market as a "digital recycling passport," an expression we coined.

We are increasing our market development in North America, encouraged by many macro level developments here at home. The ecosystem for waste collection and sortation in North America is quite different from in Europe where there is commonly only 1 or a few organizations that provide for the collection of post-consumer waste in each country. In the U.S., each municipality selects a supplier, creating a much more decentralized and complicated network. There are signs of harmonization with Europe and recognition that radical changes required and must be driven by public policy.

This has inspired numerous congressional and state proposals to implement Extended Producer Responsibility schemes as funding mechanisms. EPR fees put the economic burden of pollution on the manufacturers of products with plastic packaging to fund the infrastructure and encourage innovation. These regulations typically include a calculus for determining the amount of tax that must be paid, therefore, providing funding for improved sortation and recyclability.

We are closely monitoring EPR fee proposals in 12 states and Congress that may be acted upon during the 2021 legislative sessions to encourage explicit recognition of digital watermarking as a mitigating factor. We are also tracking similar activities in Canada. EPR fee mitigation, known as eco-modulation can serve a good benchmark of minimum value realization for ROI calculations in pricing and negotiations.

We continue to expand our influence through participation in industry initiatives and trade organizations. We are signatories to the Ellen MacArthur Foundation's New Plastics Economy, the proposed United Nations Plastic Treaty and the UN Global Compact that I mentioned earlier. We are also participating in the European Commission's Circular Plastics Alliance, the EU Plastics Pact, the US Plastics Pact, Petcore Europe and the Association of Plastics Recyclers. These activities provide a forum to advance the inclusion of our technology and policy discussions and to align legislative strategies, therefore, leveraging our government relations efforts.

Our work in HolyGrail continues to garner accolades around the world. Since our last call, P&G's use of our platform was awarded the Worldstar Global Packaging Award from the World Packaging Organization, the industry's most prestigious honor and the Packaging Association of Canada's Best of Show for Packaging Innovation, which included submissions from across North America.

We are adding resources to address this momentum. We have engaged the services of Kim Holmes as an expert consultant in government affairs and sustainability. Kim is well-known and respected in the industry and was the former Vice President of Plastics Industry Association. We have also hired a North American Sustainability Program Manager, who will help manage key relationships with our customers and facilitate timely delivery of our work for them and a North American Industry and Relationships Manager, who will help coordinate activities to advance the use of the technology in Europe and North America.

We are also hiring additional product management and marketing specialists for recycling and increasing our engineering and R&D resources. For sustainability and recycling in Europe, we are adding a Senior Program Manager to assure effective management of and delivery to the HolyGrail project and support European customers' additional circular economy initiatives based on our platform.

We are recruiting a sustainability executive to oversee all European initiatives and advance our EU legislative and regulatory agendas regarding potential requirements for use of digital watermarking in plastic packaging and recognition of such use with EPR fee modulation. Our human resources team reports that these positions generated the largest number of candidate submissions in our company's history, reflecting the importance of addressing the issues with plastic waste in our time and the passion of candidates wanting to play a role in this solution.

I'll now turn the floor back to Bruce.

Thanks for a great recap, Bob. Secular trends in the digital transformation of businesses and increasing evidence of the need to move beyond the UPC are evident in the plastics initiatives, growing demand for brand protection, serialization, enhanced product transparency and the enduring effects of the pandemic. With the fundamental building blocks of the platform in place, it is time to obsess about our customers, including both partners and end users, delivering great value efficiently and effectively across the spectrum of enabled applications. Our product and platform development are increasingly informed by end users and their suppliers, bringing problems and opportunities to us that they believe can be uniquely addressed by Digimarc.

The key takeaways from this quarterly update include that 2020 was an extraordinarily challenging year. Growth was impeded, but we came out of the year stronger in many ways than when we entered. The key market themes are: sustainability and recycling; traceability and brand protection; and safe, efficient retail store operations. Plastics recycling is showing surprisingly high momentum and amazing levels of industry participation. Walmart is increasing its investment in omnichannel digital transformation, and we are determined to play an increasingly important role.

Customers from brand protection are encouraging industry solutions based on our platform. We are formulating unique brand protection solutions that encompass physical and digital realms and leverage our security expertise.

We have always led with values. ESG is providing a road map for execution and articulation of great sustainable companies. We are committed to the ideals of ESG and should benefit from growing appreciation for the way in which we run our company and in the contributions to supporting the global monetary system, mitigating the environmental effects of plastic, reducing food waste and improving product safety.

Our leadership team is evolving to manage the wealth of opportunities across industries and new solutions. We have a Chief Product Officer and Chief Revenue Officer now with impressive track records that have joined the team, and we've had great Board developments.

Digimarc's platform is a general utility platform intended as a successor to the dominant auto identification model built on the UPC. We began the current phase of commercialization focused on improving retail store operations profitability and making the shopping experience more convenient.

Over the past couple of years, the promise of the platform has given rise to new very important uses in product safety, reduction of waste and improvement in plastics recycling. In a fashion unprecedented in my experience, we have been given 2 road maps for success, in Walmart's detailed articulation of strategy during their Investment Community Meeting and in a detailed work plan from HolyGrail leadership at AIM.

In addition, leaders in 3 separate industries have recommended us to competitors in hopes of finding industry-wide solutions to deterring counterfeit goods, reminding me of the formation of the Central Bank alliance to provide a global system to deter the counterfeiting of banknotes.

The broad utility of our platform is becoming more tangible and obvious. We have built something really special, something that will be transformative. We are strengthening our Board and management to guide our success. Embracing the core tenets of ESG's goals has always been core to Digimarc's mission and culture. First and foremost, our people are our most important asset. Keeping our workforce safe during the COVID-19 pandemic has been our primary concern. We support our employees holistically through training and development, flexible work styles and comprehensive benefits programs. They carry our values to the community through various volunteer and mentoring initiatives. We have a diverse workforce, yet see opportunities for improvement. Thus, we are bolstering our diversity and inclusion policies and programs.

We take pride in our safe and inclusive work environment. Our internal efforts to reduce carbon footprint water usage, electricity usage and electronic waste have been impactful. We have a green team constantly searching for more opportunities. Our commitment extends to our core business, protecting confidence in currency, improving recycling and product safety, reducing food and manufacturing waste and better informing consumer purchase use and recycling decisions, all helping to keep people safe and protect the planet.

With bold leadership from our Board, we are redoubling our commitment to ESG leadership, including significant changes in executive compensation to foster a pay-for-performance culture, which will be detailed in our next proxy. In the coming months, you will see us build on our internal initiatives and our existing business focus to become a leader in these qualities of sustainable, high-quality companies.

We are embracing key frameworks such as Sustainability Accounting Standards Board and the Task Force for Climate-Related Financial Disclosures to guide our efforts, set targets and report on our progress. We invite all our stakeholders, employees, customers, partners, shareholders, our community and beyond, to engage with us and join us on this journey. All well-intentioned suggestions are welcome.

Our brand is evolving from functional to purposeful. As we lead with our values, we come full circle to the bedrock of our business to turn the counterfeiting of currency. Digital payments have become more common. But when faced with natural disasters, network outages, political instability and cyber warfare, there must be a medium of exchange everyone can count on. Our important work there gave rise to an enduring mutually successful 25-year collaboration. We now see parallels in the AIM industry-wide initiative in plastics recycling in the circular economy. And in the openness of initial customers in multiple industries who are recommending us to competitors in hopes of finding industry solutions to brand protection, counterfeit deterrence and channel management based on our work. This is a very exciting time.

I'm so proud of our team for the way in which we navigated through the pandemic and the Oregon wildfires that keep us on track despite adversity. We managed well through these challenges and exited 2020 with the stage set for a bright future. With long-term funding secured, our working capital at the highest level in nearly 20 years, new skills and experience and management on our Board, formation of HolyGrail 2.0, an uptick in demand for supply chain solutions and the emergence of many new applications of our platform in the works, we have an abundance of opportunities. The key focus areas for growth include retail store operations, recycling, brand protection and traceability. We must allocate our resources wisely and deliver effectively.

As we have demonstrated our adeptness to meeting challenges, we must continue to adapt toward a sustainable, responsible, high-performance company that will deliver superior shareholder returns for years to come. Our platform will redefine relationships between people and things in many aspects of commerce and everyday life. We will help make the world a better place. We will lead with our values and continue to excel with our technical achievements.

Thank you all for your support of our mission and confidence in our ability to achieve it. That's it for our prepared remarks for today. We'll now open the call to questions.

Your question our first question is from Jim Ricchiuti with Needham & Company.

A couple of questions. Clearly, 2020 was a year where you guys made significant progress, and it sounds as if you have just a number of irons in the fire. So Bruce, one of the things. I'm wondering if you could perhaps share with us what some of the key milestones that you might be targeting for '21? Because there are a lot of irons in the fire, and it would be helpful to know which ones have the potential to have a more significant impact near term.

Sure. So the first thing, Jim, is integrating our new executive leaders into the team, and we're engaged in that process as we speak. We brought them on board because we want to sharpen our focus. We want to deliver more predictable and higher growth in our bookings and revenues. And we want to allocate our resources efficiently in doing so. We -- even though we have the most capital we've had in a very long time. We want to remain conscientious in how we apply it. And we want to demonstrate the leverage of those investments to our shareholders and to our other communities that we serve.

So I think you'll continue to look at the sort of standard benchmark of success of closing business and growing the top line. But I think you'll also see the increasing relevance of our company and its values to the kind of work that people care about in the new financial market perspectives. And so we've made an effort here not only to better articulate who we are and what we do which I think is quite consistent with that new perspective on how to build companies of great enduring value. But we're embracing other measures that we haven't yet focused on to help of our Board in order to make sure that we're on track, that we're doing all that we should be doing to be the kind of high-quality, successful company that we will be.

And so it's a great time for us where there's abundance of opportunity, new, experienced, very capable leadership, strong Board commitment to both internal and external expressions of ESG. As I said, I've never in my life actually heard of industry building a business plan for a small company. And we have a clear articulation of that in the work plan of AIM in HolyGrail 2. And we have, I think, a very good set of direction and signposts from Walmart in they're really amazing Investor Day presentation this year, quite different from prior years. They want to accelerate digitization. They've added to Sam's original notion of save money, live better. Doug's mantra of, save time, live better and in the 2021 addition of save money, save time, be safe. And all of that revolves around being efficient and supporting a wide range of shopping preferences and delivering efficiently so that margins don't suffer in the process more than necessary. I think we play perfectly into all of that.

So our job here in '21 and looking for signpost of success revolve around all of those things. And we'll do our best to report on them regularly. As you saw in Bob's presentation, there is enormous momentum building in dealing with the plastics crisis. And we are clearly defined by industry as a critical element of the means to improve our situation.

And you may have seen Bill Gates publication of his book about the climate crisis. He feels we're a generation away from catastrophe. And so I think that, whereas a couple of years ago, we were the suspect of the pace and the sincerity of involvement of people in that initiative, I am really overwhelmed by the level of support and detailed work plans that are coming from industry to help us to successfully contribute to saving the planet. So it's very cool, very cool stuff.

It sounds like more of the activity based on what -- the way you've described some of the recent developments is going to come -- be coming from the supply chain part of the business, more so than retail in '21? Is that a fair characterization? And I'm wondering if there's expectation on your part that the retail part of the business has the potential to perhaps maybe pick up in the second half of the year? Or is the visibility with customers still a little bit too cloudy?

Yes. Thank you, Jim, for the follow-on question. I'll give you quite a candid response on this, and that is that the effects of the pandemic appears to be waiting, but appear to be. We don't quite know yet. And Walmart's leadership was cautious in their remarks about this. The change in the retail environment have occurred with startling rapidity. And so they're digesting all of the required changes to accommodate new shopping experiences and wanting to accelerate their investments. And so we're wrapping our minds around those things as they are.

In terms of priorities, I think that the reprioritization exercise will go on for a while. Hopefully, we'll climb back up in ways we should. But because of the desire to maintain a reasonable investment rate and the incredible opportunity posed by -- an immediate opportunity posed in the recycling area and the surprising inbound demand for brand protection and supply chain transparency, we're going to focus our retail development efforts on Walmart. We're blessed to have the world's largest retailer as a customer, and they're an outstanding retailer, and they're innovating, leading the industry. And so I can't think of any better place to invest in retail store operations than at Walmart.

And so we're not going to be aggressively trying to add retail accounts. But we do have Netto Marken-Discount in Europe, has 4,700 stores, very big, very progressive retailer who is enjoying success with our platform. And then we recently began the rollout of our use of our platform with a large Japanese retailer. So we've got 3 bigs and I want to make the 3 bigs more successful, make us more relevant and make sure we're delivering value and then roll all of that into the rest of the retail industry over time. So I don't feel a sense of urgency to add more retail accounts, given our investment model or investment thesis that we have for '21.

Got it. If I could just slip one more in, in the Q3 call, you gave some preliminary thoughts about '21 in terms of revenues and bookings and OpEx. Any change, Bruce, in your thinking along those lines?

Well, it's been a stunningly busy 6 or 7 weeks since we were together. There's a lot going on. And so I'm more enthusiastic than I was 6 weeks ago about the year, but there's just a lot going on. And so I think -- I don't know exactly how to give you a detailed answer to that. I think things are different, but things are better than they were. And so again, I've got 2 new executive leaders. We've got 3 new Board members. And we went through the trials and tribulations of 2020, including most recently, ice storm or most of us lost power for more than a week. And so we're getting our feet on the ground here and making sure that we have our priorities spread away. So I would say in our next call, I'll have a firmer response to your question, Jim. But we're suffering from an abundance of opportunity right now. That's what we got to figure out, figure out what to do with it.

Your next question is from Jeff Van Rhee with Craig-Hallum Capital.

This is Rudy on for Jeff. I'd like to start with HolyGrail. Certainly, had some disruptions with COVID this year or I guess in 2020. That said, it does seem like the time line of project completion and meaningful revenue has pushed out a bit since the completion of HolyGrail 1.0. I know you had some bookings in the quarter from one of the Golden Threads, but appears that was probably pretty minimal considering the total bookings number. So I guess just at this point, what are your expectations as of today on the time line from here to meaningful revenue contribution. Is that something you see over the next 12 months? Or is that still a couple of years out?

Charles or Bob, do you want to chime in on this question?

Well, I guess I'll start and then let Charles come in after. This year will be primarily project-oriented. But we're prohibited under the rules of AIM to give a lot of detail at this point. They have a moratorium on a lot of the communications until they announce it, after which we're able to pipe in. But the big projects in a nutshell involve getting suppliers in this case, TOMRA and Pellenc, ready to have their prototypes, testing a number of different types of recyclable materials, including a variety of polymers, a variety of other packages, even paper and the like, and have all of those preliminary trials looking for the full-scale industrial trials later. Because it's project, it tends to be a lot of time and materials. We do have a pretty full agenda of those coming up. I look for that additional leverage in 2022 as more broad scale adoption occurs and we go from projects into even more detailed, more global types of systems work, where there's a lot of leverage coming through the supply chain through the 2D enhancement partners through the 3D converters and mold makers and through the relationships with the brands and retailers.

Charles, anything to add there?

No, I think that's a good summary. For 2021, it will be mostly service revenue. I think there's -- it depends on your definition of meaningful, but a good amount of service revenue opportunity there with upside on the licensing side later in the year to early 2022.

Yes, I would say with respect to the use of the expression meaningfully, I think we will have meaningful revenues, just as long as you're not getting more technical in your definition will be nontrivial.

Got it. I appreciate that. Got it. And then as a follow-on, I think if I look here and I adjust for Walmart, and I look at your bookings, subscription revenue, retail revenue. And I adjust for Walmart, only being in there 3 quarters in 2019 and there for the full year in '20. All of those appear to be flat to slightly down over the last couple of years. And Jim kind of already asked this. You guys said last quarter, you thought you'd have triple-digit bookings growth in '21. And I guess we'll hear an update to that next quarter. But just what are the biggest near-term opportunities for revenue growth over the next 12 months?

Charles, do you want to respond?

Sure. Yes, it comes down in the supply chain application. So traceability, brand protection and recycling. That's where we think the majority of the growth in 2021 will come from. Obviously, we're going to try to expand the relationship with Walmart. We're not focusing as much efforts on retail operations outside of our key customers in that space. So it really comes down with the supply chain applications and then all the work that we're doing in HolyGrail. Another thing to keep in mind, though, in your comparisons, too, is that we did have one contract with a supplier partner that canceled its causing some of that to appear more flat than it would have been.

Got it. And then lastly, I guess, sneak just one more in. Walmart, I know, again, a couple of quarters ago, you gave an update, I think you said you're over 2,000 SKUs. Any update on that? And then also, of course, the thermal label rollout has been on pause for a while now due to COVID. Any update there as to when you think that will get going?

So first, with respect to the package enhancement, it's substantially higher number now. I'm not sure we want to continue to give detailed information without Walmart's okay to do it, but it's much higher than 2,000 now. With respect to thermal, we're trying to figure out a way to implement that. But I think just a quick summary of the history there, we had a hold up due to some software development late last year, meaning '19, when we were hoping to get going. And then the pandemic caused everything to stop. And the proposed implementation has substantial implications for the shopping experience and for store operations generally. And so it's not yet back on the table, but not in any way, canceled. And we're trying to figure out ways to either get it going there or get it going somewhere else in order to have a fully articulated debug system ready for broad scale rollout as soon as Walmart's ready to introduce it into the new shopping experience.

Your final question is from Robin Knipp with Janney Montgomery.

Bruce, on the last call, you mentioned that new customer opportunities are in the pipeline in forms of media and industries that you guided would be contemplated by the investment community. Without any customer attribution, can you give us a bit more clarity on who -- or what these potential applications and the total addressable market that they may represent? And then I just have one quick follow-up after that.

Yes. I don't have anything to add there at this point. The -- I think one of the things that is changing now and I'd say the answer is uncertain is that between then and now I hired 2 new senior executives, revenue and product. And I brought them onboard for a reason. I want them to provide leadership for us, guiding our investments and guiding our exploitation of opportunities.

Right now, we have more opportunity than we can manage. And so those 2 executives and other members of our leadership team are collaborating to determine where we should put our investment. And we're going to have to say no to some opportunities. And so I don't have the answer for you yet because they're only a few weeks in. But we're going to sharpen our focus, and we're going to -- by doing that, I think, provide a better near-term measures of success in the capital markets. But also, I believe, focus on opportunities that have great upside. And I've outlined them for you in the script. There's no secret about them categorically. It's just a question really about specific opportunities and how we resource them.

The big change that occurred here that I want to make sure you all appreciate is that Bob listed a whole bunch of increase of resources dedicated to recycling. That was not something I expected a quarter ago, okay? When AIM came out with their announcement, I was very surprised at the level of participation, 85 members. When they recently gave us a detailed work plan and told us that the membership had grown by 50%, my jaw dropped. It's like, wow, this is real. They care. They really want us to deliver. And so we have to do some juggling. And that will mean some of the things that I was contemplating a quarter ago, we may not resource for some time.

Okay. That's fair. Then just a quick follow-up in the same vein. In your prepared remarks, you mentioned that leaders in 3 separate industries have recommended us to competitors in hopes of finding industry-wide solutions to deterring counterfeit goods. And again, without any customer attribution, can you just tell us which industries this covers?

Automotive, tobacco and pharmaceutical.

At this time, this concludes our question-and-answer session. I will now turn the call back over to Bruce Davis. Sir, please proceed.

All right. Thanks very much, everyone. It's a very exciting time for the company. And we are doing our best to keep you up to date, keep you well informed and make sure that we express our values and our technology in optimal fashion to all the relevant audiences. So we're working hard on every aspect of improving the quality of our company so that we will, in fact, be recognized for what I believe we must be, and that is a modern ideal really of the values-driven transformational technology supplier. So thanks very much for your help and all of your support. I appreciate it. Bye for now.

This concludes today's call. Thank you, ladies and gentlemen, for joining us today for the presentation. You may now disconnect.