UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from to
Commission File Number:
DIGIMARC CORPORATION
(Exact name of registrant as specified in its charter)
| | | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Smaller reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes
As of August 4, 2023, there were
| Item 1. |
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| Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 |
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| Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 4. |
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| Item 1. |
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| Item 1A. |
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| Item 2. |
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| Item 5. | Other information | 40 |
| Item 6. |
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CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(UNAUDITED)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Marketable securities | ||||||||
| Trade accounts receivable, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Lease right of use assets | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and other accrued liabilities | $ | $ | ||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 16) | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock (par value $ per share, authorized, shares issued and outstanding at June 30, 2023 and December 31, 2022) | ||||||||
| Common stock (par value $ per share, authorized, and shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: | ||||||||||||||||
| Subscription | $ | $ | $ | $ | ||||||||||||
| Service | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Subscription (1) | ||||||||||||||||
| Service (1) | ||||||||||||||||
| Amortization expense on acquired intangible assets | ||||||||||||||||
| Total cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Research, development and engineering | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Amortization expense on acquired intangible assets | ||||||||||||||||
| Impairment of lease right of use assets and leasehold improvements | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Provision) benefit for income taxes | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share: | ||||||||||||||||
| Loss per share — basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share — diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding — basic | ||||||||||||||||
| Weighted average shares outstanding — diluted | ||||||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Unrealized gain (loss) on marketable securities, net of tax of $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Foreign currency translation adjustment, net of tax of $ | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
(1) Cost of revenue for Subscription and Service excludes Amortization expense on acquired intangible assets.
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
(UNAUDITED)
| Accumulated |
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| Additional |
Other |
Total |
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| Preferred Stock |
Common Stock |
Paid-in |
Accumulated |
Comprehensive |
Shareholders' |
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| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Loss |
Equity |
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| Three months ended June 30, 2023: |
||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Issuance of restricted common stock |
||||||||||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||||||||||
| Forfeiture of restricted common stock |
( |
) | ||||||||||||||||||||||||||||||
| Purchase of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Three months ended June 30, 2022: |
||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Issuance of restricted common stock |
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| Vesting of restricted stock units |
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| Forfeiture of restricted common stock |
( |
) | ||||||||||||||||||||||||||||||
| Purchase of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Six months ended June 30, 2023: |
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| Balance at December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Issuance of restricted common stock |
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| Vesting of restricted stock units |
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| Vesting of performance stock units |
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| Forfeiture of restricted common stock |
( |
) | ||||||||||||||||||||||||||||||
| Purchase of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Unrealized gain on marketable securities |
— | — | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Six months ended June 30, 2022: |
||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||||||
| Issuance of common stock |
||||||||||||||||||||||||||||||||
| Issuance of warrants for acquisition |
— | — | ||||||||||||||||||||||||||||||
| Issuance of restricted common stock |
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| Vesting of restricted stock units |
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| Forfeiture of restricted common stock |
( |
) | ||||||||||||||||||||||||||||||
| Purchase of common stock |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Unrealized loss on marketable securities |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
| Six Months Ended June 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and write-off of property and equipment |
||||||||
| Amortization of acquired intangible assets |
||||||||
| Amortization and write-off of other intangible assets |
||||||||
| Amortization of lease right of use assets under operating leases |
||||||||
| Stock-based compensation |
||||||||
| Impairment of lease right of use assets and leasehold improvements |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Trade accounts receivable |
( |
) | ||||||
| Other current assets |
( |
) | ||||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable and other accrued liabilities |
( |
) | ( |
) | ||||
| Deferred revenue |
( |
) | ||||||
| Lease liability and other long-term liabilities |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities: |
||||||||
| Net cash paid for acquisition |
( |
) | ||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||||
| Capitalized patent costs |
( |
) | ( |
) | ||||
| Proceeds from maturities of marketable securities |
||||||||
| Purchases of marketable securities |
( |
) | ( |
) | ||||
| Net cash provided by investing activities |
||||||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock, net of issuance costs |
||||||||
| Purchase of common stock |
( |
) | ( |
) | ||||
| Repayment of loans |
( |
) | ( |
) | ||||
| Net cash (used in) provided by financing activities |
( |
) | ||||||
| Effect of exchange rate on cash |
( |
) | ||||||
| Net (decrease) increase in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for income taxes, net |
$ | ( |
) | $ | ( |
) | ||
| Supplemental schedule of non-cash activities: |
||||||||
| Property and equipment and patent costs in accounts payable |
$ | $ | ||||||
| Stock-based compensation capitalized to software and patent costs |
$ | $ | ||||||
| Common stock issued for acquisition |
$ | $ | ||||||
| Warrants issued for acquisition |
$ | $ | ||||||
| Right of use assets obtained in exchange for lease obligations |
$ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(UNAUDITED)
1. Description of Business and Significant Accounting Policies
Description of Business
Digimarc Corporation (“Digimarc” or the “Company”), an Oregon corporation, is a global leader in product digitization and digital media identification, delivering business value across industries through unique identifiers and cloud-based solutions. Digimarc’s technology highlights a product's journey to provide greater visibility into all relevant product data, allowing companies to make more intelligent business decisions.
The Digimarc Illuminate Platform is a distinctive software as a service platform that combines Digimarc’s digital watermarks and/or Quick Response (“QR”) codes with product cloud technologies. By digitizing products using Digimarc’s unique digital watermarks, QR codes, and/or other digital tags, products can connect with the web and interact with consumers and digital devices. Interactions are powered by the product cloud, where data and instructions are provided based on context, and which captures a record of every interaction.
The Digimarc product suite is built on top of the Digimarc Illuminate Platform to address specific business needs. All of the Company’s products are complementary to each other, providing exponential benefits when combined. By enabling customers to create digital identities for physical and digital media objects, Digimarc’s technologies provide many benefits, including:
| • | Digimarc Validate supports authenticity in the physical and digital worlds to help ensure online interactions can be trusted and that real products are in the right place. Digimarc's technology protects digital images, product packaging, and other physical items by delivering exclusive, covert digital watermarks and/or QR codes and a cloud-based record of product authentication information. In addition, consumer engagement capabilities provide a direct digital communications channel with consumers. |
| • | Digimarc Engage unlocks an interactive communications channel connecting brands and consumers. Digimarc’s technology activates products and media through on-package QR codes, enabling consumers to scan for more information. Combined with cloud-based rules, brands can deliver contextually relevant content based on time, location, and more. |
| • | Digimarc Recycle increases the recyclability of products and packaging. Digimarc’s technology activates products and packaging with covert digital watermarks to improve accuracy and performance in recycling facilities. In addition, consumer engagement capabilities deliver a direct digital communications channel with consumers, and a cloud-based record of recycling information provides new insights. |
| • | Digimarc Retail Experience helps brands meet the evolving needs of retail partners and consumers. Digimarc's technology leverages covert digital watermarks to provide an easier, frictionless shopping experience. In addition, consumer engagement capabilities deliver a direct digital communication channel with consumers. |
Interim Consolidated Financial Statements
Our significant accounting policies are detailed in “Note 1: Description of Business and Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 2, 2023 (the “2022 Annual Report”).
The accompanying interim consolidated financial statements have been prepared from the Company’s records without audit and, in management’s opinion, include all adjustments (consisting of only normal recurring adjustments) necessary to fairly reflect the financial condition and the results of operations for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) have been condensed or omitted in accordance with the rules and regulations of the SEC.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the 2022 Annual Report. The results of operations for the interim periods presented in these consolidated financial statements are not necessarily indicative of the results for the full year.
Principles of Consolidation
The consolidated financial statements include the accounts of Digimarc and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. Digimarc acquired EVRYTHNG Limited (“EVRYTHNG”) on January 3, 2022. The financial results of EVRYTHNG are consolidated with Digimarc’s financial results for the post-acquisition period. See Note 9 for information related to the EVRYTHNG acquisition.
Business Combinations
The Company allocates purchase price consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is determined based on the fair value of the assets transferred, liabilities assumed, and equity interests issued, after considering any transactions that are separate from the business combination. The fair value of equity issued as part of a business combination is determined based on the closing price of the Company’s stock on the date the acquisition closed. The excess of fair value of purchase price consideration over the fair values of the identifiable assets and liabilities is recorded as goodwill. Such fair value calculations require management to make significant estimates and assumptions, especially with respect to intangible assets and contingent liabilities. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customers, the cost to develop acquired technology, useful lives, discount rates, and customer attrition rate.
The estimates are inherently uncertain and subject to revision as additional information is obtained during the measurement period for an acquisition, which may last up to one year from the acquisition date. During the measurement period, the Company may record adjustments to the fair value of tangible and intangible assets acquired and liabilities assumed, with a corresponding offset to goodwill. After the conclusion of the measurement period or the final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to earnings.
Goodwill
The Company tests goodwill for impairment annually in June and whenever events or changes in circumstances indicate that the carrying value may exceed the fair value. The Company operates as a single reporting unit. The Company estimates the fair value of its single reporting unit using a market approach, which takes into account the Company’s market capitalization plus an estimated control premium.
In connection with the Company’s annual impairment test of goodwill as of June 30, 2023 and 2022, management concluded that there was no impairment to goodwill as the estimated fair value of the Company’s reporting unit substantially exceeded the carrying value.
Accounting Pronouncements Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments,” which amends the guidance on the impairment of financial instruments. The amendments in this update remove the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance removes all current recognition thresholds and introduces the new current expected credit loss (“CECL”) model which will require entities to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument’s contractual life. The new CECL model is based upon expected losses rather than incurred losses. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company adopted this new standard on January 1, 2023. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations and disclosures.
2. Fair Value of Financial Instruments
The estimated fair values of the Company’s financial instruments, which include cash equivalents, accounts receivable, accounts payable and other accrued liabilities, approximate their carrying values due to the short-term nature of these instruments. The Company’s marketable securities are classified as available-for-sale and are reported at fair value. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in “accumulated other comprehensive income (loss)” in the Consolidated Balance Sheets until realized. Realized gains and losses are included in “other income (loss), net” in the Consolidated Statements of Operations and are derived using the specific identification method for determining the cost of marketable securities sold.
The Company’s fair value hierarchy for its cash equivalents and marketable securities was as follows:
| June 30, 2023 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| Money market securities |
$ | $ | $ | $ | ||||||||||||
| Commercial paper |
||||||||||||||||
| U.S. treasuries |
||||||||||||||||
| Federal agency notes |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| December 31, 2022 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| Money market securities |
$ | $ | $ | $ | ||||||||||||
| Commercial paper |
||||||||||||||||
| Corporate notes |
||||||||||||||||
| Federal agency notes |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
The fair value maturities of the Company’s cash equivalents and marketable securities as of June 30, 2023, were as follows:
| Maturities by Period |
||||||||||||||||||||
| Less than |
1-5 | 5-10 | More than |
|||||||||||||||||
| Total |
1 year |
years |
years |
10 years |
||||||||||||||||
| Cash equivalents and marketable securities |
$ | $ | $ | $ | $ | |||||||||||||||
The Company considers all highly liquid marketable securities with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include commercial paper, U.S. treasuries, federal agency notes, and money market securities totaling $
3. Revenue Recognition
The Company derives its revenue primarily from software subscriptions and software development services. Applicable revenue recognition criteria are considered separately for each performance obligation as follows:
| • |
Subscription revenue consists primarily of revenue earned from subscription fees for access to the Company's software as a service platform and products and, to a lesser extent, licensing fees for software products. The majority of subscription contracts are recurring, paid in advance and recognized over the term of the subscription, which is typically to years. |
| • |
Service revenue consists primarily of revenue earned from the performance of software development services and, to a lesser extent, professional services. The majority of software development contracts are structured as time and materials agreements. Revenue for services is generally recognized as the services are performed. Billing for services rendered generally occurs within month after the services are provided. |
Customer arrangements may contain multiple performance obligations such as software subscriptions, software products, software development services, and/or maintenance and support fees. The Company accounts for individual products and services separately if they are distinct. To determine the transaction price, the Company considers the terms of the contract and the Company’s customary business practices. Some contracts may contain variable consideration. In those cases, the Company estimates the amount of variable consideration based on the sum of probability-weighted amounts in a range of possible consideration amounts. As part of this assessment, the Company will evaluate whether any of the variable consideration is constrained and if it is the Company will not include it in the transaction price. The consideration is allocated between distinct products and services based on their stand-alone selling prices. For items that are not sold separately, the Company estimates the standalone selling price based on reasonably available information, including market conditions, specific factors affecting the Company, and information about the customer. For distinct products and services, the Company typically recognizes the revenue associated with these performance obligations as they are delivered to the customer. Products and services that are not capable of being distinct are combined with other products or services until a distinct performance obligation is identified.
All revenue recognized in the Consolidated Statements of Operations is considered to be revenue from contracts with customers.
The following table provides information about disaggregated revenue by major target market in the Company’s single reporting segment:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Commercial: | ||||||||||||||||
| Subscription | $ | $ | $ | $ | ||||||||||||
| Service | ||||||||||||||||
| Total Commercial | ||||||||||||||||
| Government: | ||||||||||||||||
| Subscription | $ | $ | $ | $ | ||||||||||||
| Service | ||||||||||||||||
| Total Government | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company has contract assets from contracts with customers that are classified as “trade accounts receivable” in the Consolidated Balance Sheets. Financial information about trade accounts receivable is included in Note 8.
The Company has contract assets from capitalized contract acquisition costs that are classified as “other current assets” and “other assets.” These contract acquisition costs are recognized in proportion to the revenue recognized from the contract they are associated with.
The following table provides information about contract assets:
| June 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Contract acquisition costs, current |
$ | $ | ||||||
| Contract acquisition costs, long-term |
||||||||
| Total |
$ | $ | ||||||
The Company has contract liabilities from contracts with customers that are classified as “deferred revenue” in the Consolidated Balance Sheets. Deferred revenue consists of billings in advance for subscriptions and services for which the performance obligation has not been satisfied.
The following table provides information about contract liabilities:
| June 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Deferred revenue, current |
$ | $ | ||||||
| Deferred revenue, long-term |
||||||||
| Total |
$ | $ | ||||||
The Company recognized $
The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $
4. Segment Information
Geographic Information
The Company derives its revenue from a single reporting segment: product digitization solutions. Revenue is generated in this segment primarily through software subscriptions and software development services. The Company markets its products in the U.S. and in non-U.S. countries through its sales personnel and partners.
Revenue by geographic area, based upon the “bill-to” location, was as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Domestic | $ | $ | $ | $ | ||||||||||||
| International (1) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (1) |
Revenue from the Central Banks, consisting of a consortium of central banks around the world, is classified as International revenue. Reporting revenue by country for this customer is not practicable. |
Major Customers
The following customers accounted for 10% or more of revenue:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Customer A |
% | % | % | % | ||||||||||||
| Customer B |
% | * | % | * | ||||||||||||
| * |
Less than 10% |
Long-Lived Assets by Geographical Area
Long-lived assets by geographic area were as follows:
| June 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| United States |
$ | $ | ||||||
| Europe |
||||||||
| Total |
$ | $ | ||||||
5. Stock-Based Compensation
Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include stock options, restricted stock, restricted stock units and performance stock units.
Stock-based compensation expense related to internal labor is capitalized to software and patent costs based on direct labor hours charged to capitalized software and patent costs.
Determining Fair Value
Stock Options
The Company estimates the fair value of stock options on the date of grant (measurement date) using the Black-Scholes option pricing model. The Company recognizes the fair value of stock option awards on a straight-line basis over the service period of the award.
There were
Restricted Stock Awards
The fair value of restricted stock awards ("RSA") that vest upon meeting a service condition is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally to years for employee grants and to years for director grants.
Restricted Stock Units
The fair value of restricted stock unit (“RSU”) awards that vest upon meeting a service condition is based on the fair market value of the Company’s common stock on the date of the grant (measurement date) and is recognized on a straight-line basis over the service period of the award, which is generally to years for employee grants.
Performance Stock Units
The fair value of performance stock unit (“PSU”) awards that vest upon meeting a service condition and a performance condition, such as the Company exceeding a future annual recurring revenue target, is determined based on the probability of achievement of the performance criteria as of each reporting date (measurement dates). The probability of achievement is subject to judgment, and could change from period to period, impacting the amount of expense to be recognized. The Company recognizes the fair value of the award, after adjusting for any changes in the probability of achievement, on a straight-line basis over the service period of the award, which is generally years for employee grants.
The fair value of PSU awards that vest upon meeting a service condition and a market condition, such as the Company exceeding shareholder returns as compared to an index of peer companies, is determined on the date of grant (measurement date) using the Monte Carlo valuation model. The Company recognizes the fair value of the award on a straight-line basis over the service period of the award, which is generally years for employee grants.
The following inputs are used in the Monte Carlo valuation model to estimate the fair value:
Stock Price. The stock price represents the fair market value of the Company’s common stock on the date of the grant.
Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock based on historical prices over the most recent period commensurate with the term of the award.
Risk-Free Interest Rate. The Company determines the risk-free interest rate using current U.S. treasury yields for bonds with a maturity commensurate with the term of the award.
Monte Carlo valuation inputs:
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Stock price |
$ | $ | $ | $ | ||||||||||||
| Expected volatility |
% | % | ||||||||||||||
| Risk-free interest rate |
% | % | ||||||||||||||
Stock-Based Compensation
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Stock-based compensation: | ||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| Research, development and engineering | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||
| Capitalized to software and patent costs | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s stock incentive plan:
| June 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Total unrecognized compensation costs |
$ | $ | ||||||
Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.
The Company expects to recognize the total unrecognized compensation costs as of June 30, 2023, for all non-vested stock-based awards over weighted average periods through June 30, 2027, as follows:
| RSAs |
RSUs |
PSUs |
||||||||||
| Weighted average period (in years) |
||||||||||||
As of June 30, 2023, under the Company’s stock incentive plan, an additional
Stock Option Activity
The following table presents the outstanding stock option activity:
| Weighted |
Weighted |
|||||||||||||||
| Average |
Average |
Aggregate |
||||||||||||||
| Number of |
Exercise |
Grant Date |
Intrinsic |
|||||||||||||
| Three Months Ended June 30, 2023: |
Options |
Price |
Fair Value |
Value |
||||||||||||
| Outstanding at March 31, 2023 |
$ | $ | ||||||||||||||
| Granted |
$ | $ | ||||||||||||||
| Exercised |
$ | $ | ||||||||||||||