Digimarc Corp.

Q2 revenue was $7.4 million, compared with $8 million in Q2 last year. Subscription revenue was $3.7 million, down from $4.6 million, while service revenue was $3.6 million, up from $3.4 million. Subscription gross margin was 89%, up 4 points year over year, and service gross margin was 60%, up 1 point. Operating expenses were $16.7 million versus $13.1 million last year; excluding $5.4 million of stock-based compensation and $700,000 of severance, operating expenses were $10.6 million, down 19% year over year. Net loss per diluted share was $0.54 versus $0.38 last year; non-GAAP net loss per diluted share was $0.08 versus $0.11. Ending ARR was $11.6 million versus $15.9 million a year ago. The company ended with $8.8 million in cash and short-term investments and no debt. Management did not provide formal next-quarter or full-year revenue guidance, but said it no longer expects its original target for significant ARR growth by year-end; it continues to expect meaningful ARR growth from gift cards, but now sees that timing shifting into late Q4 2026 and Q1 2027.

Paul Carreiro framed Digimarc as a company with differentiated technology but weak commercial execution, saying the fix is leadership focus, structure, and accountability. He said the company is redesigning around retail and CPG, where it believes it has the strongest differentiation and where customer problems are clearer and more measurable. His tone was confident and constructive, emphasizing that the Secure Gift Card solution is already live, the CPG Digital Link rollout is real, and the next phase is execution rather than invention.

Charles Beck focused on the numbers and the near-term operating reset. He said ending ARR was $11.6 million, down from $15.9 million, with the decline driven mainly by an expired $3.1 million contract and a $2.6 million contract reduction, partially offset by $1.5 million of net ARR growth; he also said the company no longer expects its original year-end ARR growth target. He noted gross margin progress, with subscription gross margin at 89% and service gross margin at 60%, while operating expenses were $16.7 million, or $10.6 million excluding stock-based compensation and severance. Cash was $8.8 million with no debt, and the company used $1.0 million of free cash flow, $600,000 for share repurchases tied to employee equity programs, and raised $300,000 through its ATM.

Analysts pressed on why retail and CPG are the right focus, and management said those are already the most developed areas with the strongest current differentiation and best chance to build a defensible moat. Questions also centered on timing for the go-to-market rebuild and gift card ramp; Paul said senior hires should largely be in place by the end of Q3, with account executive capacity added through Q3 and Q4, while meaningful gift card demand is expected to build toward the end of Q4 and beginning of Q1 2027. On capital allocation, management said most incremental investment will go into go-to-market build-out, and on churn Charles said most recent churn has come from two special-case customers that now represent less than 10% of ending ARR.