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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34108

DIGIMARC CORPORATION

(Exact name of registrant as specified in its charter)

Oregon

26-2828185

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

8500 SW Creekside Place, Beaverton, Oregon 97008

(Address of principal executive offices) (Zip Code)

(503) 469-4800

(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
Common Stock, $0.001 Par Value Per Share		DMRC		The NASDAQ Stock Market LLC

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐

Non-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 ☐ No ☒

As of November 7, 2025, there were 21,756,987 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

Table of Contents

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	3
	Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024	3
	Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2025 and 2024	4
	Consolidated Statements of Shareholders’ Equity for the three and nine months ended September 30, 2025 and 2024	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
SIGNATURES		36

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

	*September 30,*			*December 31,*
	*2025*			*2024*
ASSETS
Current assets:
Cash and cash equivalents	$	9,101		$	12,365
Marketable securities		3,461			16,365
Trade accounts receivable, net		6,321			6,412
Other current assets		2,873			4,189
Total current assets		21,756			39,331
Property and equipment, net		1,227			1,040
Intangibles, net		18,765			22,191
Goodwill		9,060			8,532
Lease right of use assets		3,350			3,659
Other assets		1,277			1,013
Total assets	$	55,435		$	75,766
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	5,595		$	5,118
Deferred revenue		3,842			4,020
Total current liabilities		9,437			9,138
Long-term lease liabilities		4,549			5,213
Other long-term liabilities		62			56
Total liabilities		14,048			14,407
Commitments and contingencies (Note 17)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at September 30, 2025 and December 31, 2024)		50			50
Common stock (par value $0.001 per share, 50,000 authorized, 21,751 and 21,495 shares issued and outstanding at September 30, 2025 and December 31, 2024, respectively)		22			21
Additional paid-in capital		421,592			415,049
Accumulated deficit		(378,880	)		(350,778	)
Accumulated other comprehensive loss		(1,397	)		(2,983	)
Total shareholders’ equity		41,387			61,359
Total liabilities and shareholders’ equity	$	55,435		$	75,766

The accompanying notes are an integral part of these consolidated financial statements.

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DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Revenue:
Subscription	$	4,567		$	5,252		$	14,505		$	17,394
Service		3,060			4,191			10,500			12,366
Total revenue		7,627			9,443			25,005			29,760
Cost of revenue:
Subscription ⁽¹⁾		642			735			2,101			2,205
Service⁽¹⁾		1,330			1,638			4,120			5,138
Amortization expense on acquired intangible assets		1,209			1,173			3,546			3,445
Total cost of revenue		3,181			3,546			9,767			10,788
Gross profit		4,446			5,897			15,238			18,972
Operating expenses:
Sales and marketing		2,852			5,637			11,161			16,789
Research, development and engineering		4,315			6,488			16,485			19,873
General and administrative		5,355			4,861			15,614			13,695
Amortization expense on acquired intangible assets		288			280			847			823
Total operating expenses		12,810			17,266			44,107			51,180
Operating loss		(8,364	)		(11,369	)		(28,869	)		(32,208	)
Other income, net		217			617			796			1,868
Loss before income taxes		(8,147	)		(10,752	)		(28,073	)		(30,340	)
Provision for income taxes		(5	)		(2	)		(29	)		(22	)
Net loss	$	(8,152	)	$	(10,754	)	$	(28,102	)	$	(30,362	)

Loss per share:
Loss per share — basic	$	(0.38	)	$	(0.50	)	$	(1.30	)	$	(1.43	)
Loss per share — diluted	$	(0.38	)	$	(0.50	)	$	(1.30	)	$	(1.43	)
Weighted average shares outstanding — basic		21,709			21,435			21,614			21,187
Weighted average shares outstanding — diluted		21,709			21,435			21,614			21,187

Comprehensive loss:
Unrealized gain (loss) on marketable securities, net of tax of $0	$	6		$	6		$	9		$	(11	)
Foreign currency translation adjustment, net of tax of $0		(457	)		1,591			1,577			1,314
Other comprehensive income (loss)	$	(451	)	$	1,597		$	1,586		$	1,303
Net loss		(8,152	)		(10,754	)		(28,102	)		(30,362	)
Comprehensive loss	$	(8,603	)	$	(9,157	)	$	(26,516	)	$	(29,059	)

⁽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.

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DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(UNAUDITED)

																*Accumulated*
										*Additional*						*Other*			*Total*
	*Preferred Stock*				*Common Stock*					*Paid-in*			*Accumulated*			*Comprehensive*			*Shareholders’*
	*Shares*		*Amount*		*Shares*			*Amount*		*Capital*			*Deficit*			*Loss*			*Equity*

Three Months Ended September 30, 2025
Balance at June 30, 2025		10	$	50		21,657		$	22	$	418,085		$	(370,728	)	$	(946	)	$	46,483
Issuance of restricted common stock		—		—		22			—		—			—			—			—
Vesting of restricted stock units		—		—		120			—		—			—			—			—
Purchase of common stock		—		—		(48	)		—		(419	)		—			—			(419	)
Stock-based compensation		—		—		—			—		3,926			—			—			3,926
Unrealized gain (loss) on marketable securities		—		—		—			—		—			—			6			6
Foreign currency translation adjustments		—		—		—			—		—			—			(457	)		(457	)
Net loss		—		—		—			—		—			(8,152	)		—			(8,152	)
Balance at September 30, 2025		10	$	50		21,751		$	22	$	421,592		$	(378,880	)	$	(1,397	)	$	41,387

Three Months Ended September 30, 2024
Balance at June 30, 2024		10	$	50		21,420		$	21	$	411,331		$	(331,376	)	$	(2,858	)	$	77,168
Vesting of restricted stock units		—		—		52			—		—			—			—			—
Forfeiture of restricted common stock		—		—		(6	)		—		—			—			—			—
Purchase of common stock		—		—		(22	)		—		(558	)		—			—			(558	)
Stock-based compensation		—		—		—			—		2,707			—			—			2,707
Unrealized gain (loss) on marketable securities		—		—		—			—		—			—			6			6
Foreign currency translation adjustments		—		—		—			—		—			—			1,591			1,591
Net loss		—		—		—			—		—			(10,754	)		—			(10,754	)
Balance at September 30, 2024		10	$	50		21,444		$	21	$	413,480		$	(342,130	)	$	(1,261	)	$	70,160


																*Accumulated*
										*Additional*						*Other*			*Total*
	*Preferred Stock*				*Common Stock*					*Paid-in*			*Accumulated*			*Comprehensive*			*Shareholders’*
	*Shares*		*Amount*		*Shares*			*Amount*		*Capital*			*Deficit*			*Loss*			*Equity*
Nine Months Ended September 30, 2025
Balance at December 31, 2024		10	$	50		21,495		$	21	$	415,049		$	(350,778	)	$	(2,983	)	$	61,359
Issuance of restricted common stock		—		—		69			—		—			—			—			—
Vesting of restricted stock units		—		—		267			—		—			—			—			—
Vesting of performance restricted stock units		—		—		49			—		—			—			—			—
Purchase of common stock		—		—		(129	)		1		(2,468	)		—			—			(2,467	)
Stock-based compensation		—		—		—			—		9,011			—			—			9,011
Unrealized gain (loss) on marketable securities		—		—		—			—		—			—			9			9
Foreign currency translation adjustments		—		—		—			—		—			—			1,577			1,577
Net loss		—		—		—			—		—			(28,102	)		—			(28,102	)
Balance at September 30, 2025		10	$	50		21,751		$	22	$	421,592		$	(378,880	)	$	(1,397	)	$	41,387

Nine Months Ended September 30, 2024
Balance at December 31, 2023		10	$	50		20,379		$	20	$	376,189		$	(311,768	)	$	(2,564	)	$	61,927
Issuance of common stock		—		—		929			1		32,217			—			—			32,218
Issuance of restricted common stock		—		—		24			—		—			—			—			—
Vesting of restricted stock units		—		—		148			—		—			—			—			—
Vesting of performance restricted stock units		—		—		60			—		—			—			—			—
Forfeiture of restricted common stock		—		—		(7	)		—		—			—			—			—
Purchase of common stock		—		—		(89	)		—		(2,890	)		—			—			(2,890	)
Stock-based compensation		—		—		—			—		7,964			—			—			7,964
Unrealized gain (loss) on marketable securities		—		—		—			—		—			—			(11	)		(11	)
Foreign currency translation adjustments		—		—		—			—		—			—			1,314			1,314
Net loss		—		—		—			—		—			(30,362	)		—			(30,362	)
Balance at September 30, 2024		10	$	50		21,444		$	21	$	413,480		$	(342,130	)	$	(1,261	)	$	70,160

The accompanying notes are an integral part of these consolidated financial statements.

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DIGIMARC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

	*Nine Months Ended September 30,*
	*2025*			*2024*
Cash flows from operating activities:
Net loss	$	(28,102	)	$	(30,362	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and write-off of property and equipment		430			570
Amortization of acquired intangible assets		4,393			4,268
Amortization and write-off of other intangible assets		989			651
Amortization of lease right of use assets under operating leases		309			263
Stock-based compensation		8,896			7,939
Increase (decrease) in allowance for doubtful accounts		681			96
Changes in operating assets and liabilities:
Trade accounts receivable		(1,207	)		(1,321	)
Other current assets		1,139			(9	)
Other assets		(358	)		(582	)
Accounts payable and other accrued liabilities		245			(816	)
Deferred revenue		443			(2,448	)
Lease liability and other long-term liabilities		(628	)		(586	)
Net cash provided by (used in) operating activities		(12,770	)		(22,337	)
Cash flows from investing activities:
Purchase of property and equipment		(474	)		(199	)
Capitalized patent costs		(465	)		(313	)
Proceeds from maturities of marketable securities		15,352			16,978
Purchases of marketable securities		(2,448	)		(19,376	)
Net cash provided by (used in) investing activities		11,965			(2,910	)
Cash flows from financing activities:
Issuance of common stock, net of issuance costs		—			32,218
Purchase of common stock		(2,467	)		(2,890	)
Repayment of loans		(31	)		(35	)
Net cash provided by (used in) financing activities		(2,498	)		29,293
Effect of exchange rate on cash		39			58
Net increase (decrease) in cash and cash equivalents		(3,264	)		4,104
Cash and cash equivalents at beginning of period		12,365			21,456
Cash and cash equivalents at end of period	$	9,101		$	25,560
Supplemental disclosure of cash flow information:
Cash received (paid) for income taxes, net	$	(32	)	$	(49	)
Supplemental schedule of non-cash activities:
Property and equipment and patent costs in accounts payable	$	164		$	49
Stock-based compensation capitalized to software and patent costs	$	115		$	25

The accompanying notes are an integral part of these consolidated financial statements.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(UNAUDITED)

1. Description of Business and Significant Accounting Policies

Description of Business

Digimarc ("the Company"), an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon one or both of the following two things: the identification and the authentication of physical and digital items, often at massive scale, and often where other methods of identification or authentication don’t work well or don’t work at all.

The Digimarc Illuminate platform is a distinctive software as a service (“SaaS”) cloud-based platform for digital connectivity that provides the tools for the application of advanced digital watermarks and dynamic Quick Response (“QR”) codes, software (digital twins) that enables various systems and devices to interact with those data carriers, and a centralized platform for capturing insights about digital interactions and automating activities based on that information.

The Digimarc product suite is built on top of the Digimarc Illuminate platform to power a trusted and scalable ecosystem that can address specific business needs in areas like automation, authenticity, sustainability, and customer trust and connectivity. All of the Company’s products are complementary to each other, providing exponential benefits when combined. By enabling customers to create and connect digital twins to physical and digital items, Digimarc’s products provide many benefits including:

•

Digimarc Automate improves product inspection by embedding imperceptible digital watermarks into products, labels, and packaging, which are detectable by standard vision systems. This significantly reduces mixing errors and mislabeling, ensuring higher accuracy and efficiency in production, fulfillment, and distribution facilities without additional costs for special inks or hardware. By enabling real-time data analysis and minimizing human error, Digimarc Automate enhances quality assurance, reduces waste, and lowers the risk of product recalls, giving brands a competitive edge.

•

Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences (including personalized and automated loyalty and rewards programs) based on a variety of factors such as time and location or previous behavior. Connecting engagements across the physical and digital worlds in a singular view results in powerful new capabilities and insights for brands.

•

Digimarc Recycle increases the quality and quantity of recycled materials by digitizing products and packaging with digital watermarking technology. Coupled with consumer engagement capabilities, brands can leverage a direct, digital communications channel. Plus, Digimarc Recycle creates a cloud-based record of never-before-seen post-consumption data to provide new insights that benefit stakeholders across the value chain, including brands, facility operators, and Producer Responsibility Organizations (“PROs”).

•

Digimarc Retail Experience delivers smarter, connected packaging that supports next-generation retail checkout systems, including checkout efficiency (faster scanning) and checkout effectiveness (reduced shrinkage, including gift card and price look-up fraud prevention), optimized operational processes, advanced consumer engagement experiences, compliance with upcoming industry standards, and the collection of powerful first-party data and consumer insights.

•

Digimarc Validate supports authentication in the physical and digital worlds to help ensure online interactions can be trusted and that real products and digital assets are genuine and in the right place. Digimarc’s technology protects digital images, audio, product packaging, gift cards, and other physical items by delivering exclusive, covert digital watermarks and/or dynamic QR codes and a cloud-based record of product authentication information. In addition, consumer engagement capabilities provide a direct, digital communications channel.

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, 2024, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2025 (the “2024 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 2024 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.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Accounting Pronouncements Issued But Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09 “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures”. The ASU requires greater disaggregation of income tax disclosures primarily on the income tax rate reconciliation and income taxes paid. This ASU will be effective for the Company for the fiscal year ending December 31, 2025, with early adoption permitted. The adoption of this ASU will lead to additional income tax disclosures in the Company's consolidated financial statements for 2025 and future periods.

In November 2024, the FASB issued ASU No. 2024-03 “Income Statement (Subtopic 220-40) - Reporting Comprehensive Income - Expense Disaggregation Disclosures”. The ASU requires disaggregated disclosure of income statement expenses, primarily the disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This ASU will be effective for the Company starting in the fiscal year ending December 31, 2027 for annual periods and in the first quarter of the fiscal year ending December 31, 2028 for interim periods, with early adoption permitted. The Company is currently evaluating the effect of adopting this ASU on the Company’s disclosures, but it is not expected to have a material impact.

In September 2025, the FASB issued ASU No. 2025-06, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”, which includes amendments intended to modernize the accounting for software costs by removing references to software development stages and clarifying the capitalization threshold. The amendments are effective for annual periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods, with early adoption permitted. The amendments may be applied prospectively, retrospectively, or through a modified transition approach. The Company is currently evaluating the effect of adopting this ASU on the Company’s consolidated financial statements 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 loss” in the Consolidated Balance Sheets until realized. Realized gains and losses are included in “other income, net” in the Consolidated Statements of Operations and Comprehensive Loss and are derived using the specific identification method for determining the cost of marketable securities sold.

In accordance with Accounting Standards Codification (“ASC”) No. 820 “Fair Value Measurements and Disclosures”, the Company defines its fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, in the following:

•

Level 1 Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date.

•

Level 2 Pricing inputs are quoted for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

•

Level 3 Pricing inputs are unobservable for the investment; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

The Company’s fair value hierarchy for its cash equivalents and marketable securities was as follows:

September 30, 2025	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	1,604	$	—	$	—	$	1,604
Commercial paper		—		4,390		—		4,390
Federal agency notes		—		3,212		—		3,212
U.S. treasuries		—		1,996		—		1,996
Total	$	1,604	$	9,598	$	—	$	11,202

December 31, 2024	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	112	$	—	$	—	$	112
Commercial paper		—		10,633		—		10,633
U.S. treasuries		—		9,192		—		9,192
Federal agency notes		—		5,317		—		5,317
Total	$	112	$	25,142	$	—	$	25,254

The fair value maturities of the Company’s cash equivalents and marketable securities as of September 30, 2025, 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	$	11,202	$	11,202	$	—	$	—	$	—

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, federal agency notes, U.S. treasuries, and money market securities totaling $7,741 and $8,889 at September 30, 2025 and December 31, 2024, respectively. Cash equivalents are carried at either cost or fair value, depending on the type of security.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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 SaaS 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 one to three years.

•

Customer arrangements may contain multiple deliverables such as software platform subscriptions, software product subscriptions, and professional services. Subscriptions and services offered are usually distinct performance obligations. When they are not capable of being distinct, they are combined with other subscriptions or services until a distinct performance obligation is identified. To determine the transaction price, management considers the terms of the contract and the Company’s customary business practices. Some contracts may contain variable consideration. In those cases, management 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, management evaluates whether any of the variable consideration is constrained and if it is, it is not included in the transaction price. The consideration is allocated between distinct performance obligations based on their stand-alone selling prices. When the standalone selling prices are not directly observable, management makes estimates based on reasonably available information, including market conditions, specific factors affecting the Company, and information about the customer. The Company recognizes the revenue associated with each performance obligation as the obligation is fulfilled, which for subscriptions is typically recognized ratably over time, and for services is typically recognized when they are performed.

All revenue recognized in the Consolidated Statements of Operations and Comprehensive Loss 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 September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Commercial:
Subscription	$	4,267	$	4,952	$	13,605	$	16,494
Service		41		430		876		864
Total Commercial	$	4,308	$	5,382	$	14,481	$	17,358
Government:
Subscription	$	300	$	300	$	900	$	900
Service		3,019		3,761		9,624		11,502
Total Government		3,319		4,061		10,524		12,402
Total	$	7,627	$	9,443	$	25,005	$	29,760

The Company has contract assets from contracts with customers that are classified as “trade accounts receivable” in the Consolidated Balance Sheets. See Note 8 for more information about trade accounts receivable.

The Company has contract assets from capitalized contract acquisition costs that are classified as “other current assets” and “other assets” in the Consolidated Balance Sheets. 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:

	*September 30,*		*December 31,*
	*2025*		*2024*
Contract acquisition costs, current	$	124	$	38
Contract acquisition costs, long-term		199		—
Total	$	323	$	38

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:

	*September 30,*		*December 31,*
	*2025*		*2024*
Deferred revenue, current	$	3,842	$	4,020
Deferred revenue, long-term		16		2
Total	$	3,858	$	4,022

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

The Company recognized $3,598 of revenue during the nine months ended September 30, 2025, that was included in the contract liability balance as of December 31, 2024.

The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $28,880 and $25,215 as of September 30, 2025, and December 31, 2024, respectively. As of September 30, 2025, the Company expects $22,672 of the $28,880 to be recognized as revenue during the next twelve months.

4. Segment Information

Significant Segment Expenses

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 manages its business activities on a consolidated basis. In addition, the Chief Executive Officer of the Company, as the chief operating decision-maker (“CODM”), reviews the Company’s operating results and makes decisions to allocate resources based on consolidated financial information. As such, the Company has one single reportable segment. The CODM uses consolidated net income (loss) as a performance measure and total consolidated assets as an asset measure, to assess performance of the Company, to allocate working capital, and to monitor budget versus actual results.

The following table illustrates reported segment revenue, segment profit and loss, and significant segment expenses.

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2025*			*2024*			*2025*			*2024*
Revenue:
Subscription	$	4,567		$	5,252		$	14,505		$	17,394
Service		3,060			4,191			10,500			12,366
Total revenue		7,627			9,443			25,005			29,760
Cost of revenue:
Subscription ⁽¹⁾		642			735			2,101			2,205
Service⁽¹⁾		1,330			1,638			4,120			5,138
Amortization expense on acquired intangible assets		1,209			1,173			3,546			3,445
Total cost of revenue		3,181			3,546			9,767			10,788
Operating expenses:
Cash compensation		4,875			10,322			22,281			30,425
Stock-based compensation		3,529			2,548			8,170			7,376
Professional services and consultants		1,969			2,057			6,811			5,880
Software and hardware		608			871			2,146			2,759
Depreciation and amortization		563			536			1,606			1,636
Other segment items ⁽²⁾		1,266			932			3,093			3,104
Total operating expenses		12,810			17,266			44,107			51,180
Operating loss		(8,364	)		(11,369	)		(28,869	)		(32,208	)
Other income, net		217			617			796			1,868
Provision for income taxes		(5	)		(2	)		(29	)		(22	)
Net loss	$	(8,152	)	$	(10,754	)	$	(28,102	)	$	(30,362	)

⁽¹⁾	Cost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets.

⁽²⁾	Other segment items include training and travel expenses, recruiting expenses, rent and facility expenses, bad debt expenses and other miscellaneous costs.

Geographic Information

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 September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Domestic	$	2,308	$	2,004	$	6,781	$	8,349
International ⁽¹⁾		5,319		7,439		18,224		21,411
Total	$	7,627	$	9,443	$	25,005	$	29,760

⁽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.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Major Customers

The following customers accounted for 10% or more of revenue:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2025*			*2024*			*2025*			*2024*
Customer A		43	%		43	%		42	%		41	%
Customer B		*			16	%		13	%		15	%
Customer C		11	%		*			10	%		15	%

*	Less than 10%

Long-Lived Assets by Geographical Area

Long-lived assets by geographic area were as follows:

	*September 30,*		*December 31,*
	*2025*		*2024*
United States	$	1,223	$	1,026
Europe		4		14
Total	$	1,227	$	1,040

5. Stock-Based Compensation

Stock-based compensation includes expense charges for all stock-based awards to employees and directors. These awards include restricted stock awards, restricted stock units, and performance restricted 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

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 three to four years for employee grants and one to three years for director grants.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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 three to four years for employee grants.

Performance Restricted Stock Units

The fair value of performance restricted stock unit (“PRSU”) 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 fair market value of the Company’s common stock on the date of the grant (measurement date), adjusted for probability of achievement of the performance criteria as of each reporting date, and is recognized on a straight-line basis over the service period of the award, which is generally three years for employee grants. The probability of achievement is subject to judgment, and could change from period to period, impacting the amount of expense to be recognized.

The fair value of PRSU 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 three 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 September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*			*2024*
Stock price	$	—	$	—	$	13.16		$	36.64
Expected volatility		—		—		70.9	%		66.3	%
Risk-free interest rate		—		—		3.8	%		4.3	%

Stock-Based Compensation

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Stock-based compensation:
Cost of revenue	$	336	$	154	$	726	$	563
Sales and marketing		577		688		1,727		2,198
Research, development and engineering		1,244		648		2,872		1,911
General and administrative		1,708		1,212		3,571		3,267
Stock-based compensation expense		3,865		2,702		8,896		7,939
Capitalized to software and patent costs		61		5		115		25
Total stock-based compensation	$	3,926	$	2,707	$	9,011	$	7,964

The following table sets forth total unrecognized compensation costs related to non-vested stock-based awards granted under the Company’s stock incentive plan:

	*September 30,*		*December 31,*
	*2025*		*2024*
Total unrecognized compensation costs	$	15,491	$	16,226

Total unrecognized compensation costs will be adjusted based on updates to the estimated future achievement of performance conditions on PRSU awards as well as for any future forfeitures if and when they occur.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

The Company expects to recognize the total unrecognized compensation costs as of September 30, 2025, for all non-vested stock-based awards over weighted average periods through September 30, 2029, as follows:

		*RSAs*				*RSUs*				*PRSUs*
Weighted average period (in years)			1.06				1.47				1.41

As of September 30, 2025, under the Company’s stock incentive plan, an additional 2,347 shares remained available for future grants. The Company issues new shares upon the grants of RSAs and vesting of RSU and PRSU awards.

Restricted Stock Awards Activity

The following table presents the unvested RSA activity:

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2025:	*Shares*			*Fair Value*
Unvested balance at June 30, 2025		74		$	18.15
Granted		22		$	12.27
Vested		(5	)	$	19.52
Forfeited		—		$	—
Unvested balance at September 30, 2025		91		$	16.59

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2025:	*Shares*			*Fair Value*
Unvested balance at December 31, 2024		59		$	29.98
Granted		69		$	12.69
Vested		(37	)	$	30.61
Forfeited		—		$	—
Unvested balance at September 30, 2025		91		$	16.59

The fair value of RSAs vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Fair value of RSAs vested	$	73	$	308	$	668	$	2,069

Restricted Stock Units Activity

The following table presents the unvested RSU award activity:

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2025:	*Shares*			*Fair Value*
Unvested balance at June 30, 2025		679		$	16.25
Granted		98		$	8.98
Vested		(120	)	$	16.46
Forfeited		(41	)	$	19.69
Unvested balance at September 30, 2025		616		$	14.83

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2025:	*Shares*			*Fair Value*
Unvested balance at December 31, 2024		406		$	28.27
Granted		673		$	13.09
Vested		(267	)	$	18.81
Forfeited		(196	)	$	26.30
Unvested balance at September 30, 2025		616		$	14.83

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

The fair value of RSU awards vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Fair value of RSU awards vested	$	1,082	$	1,356	$	4,119	$	4,403

Performance Restricted Stock Units Activity

The following table presents the unvested PRSU award activity:

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2025:	*Shares*			*Fair Value*
Unvested balance at June 30, 2025		560		$	18.49
Change in units based on performance expectations		—		$	—
Granted		3		$	8.81
Vested		—		$	—
Forfeited		(39	)	$	18.18
Unvested balance at September 30, 2025		524		$	18.45

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2025:	*Shares*			*Fair Value*
Unvested balance at December 31, 2024		215		$	32.08
Change in units based on performance expectations		(5	)	$	42.43
Granted		421		$	15.20
Vested		(49	)	$	42.43
Forfeited		(58	)	$	23.04
Unvested balance at September 30, 2025		524		$	18.45

The fair value of PRSU awards vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Fair value of PRSU awards vested	$	—	$	—	$	1,707	$	2,370

6. Shareholders’ Equity

Registered Direct Offering

On February 24, 2024, the Company entered into purchase agreements with certain investors providing for the issuance and sale by the Company of 929 shares of common stock in a registered direct stock offering. The common shares were offered at a price of $35.00 per share, and the gross cash proceeds to the Company were $32,500. We incurred $282 of legal costs related to the offering. The closing of the registered direct offering occurred on February 27, 2024.

Employee Stock Purchase Plan

On February 25, 2025, the Company’s Board of Directors adopted the 2025 Employee Stock Purchase Plan (“ESPP”). The Company reserved a total of 250 thousand shares and as of September 30, 2025, there were 250 thousand shares authorized and available for future issuance under the ESPP. Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 15% of their salary for the purchase of the Company’s common stock at a discounted price per share. The Company’s current offering period began on June 16, 2025, with the first purchase period ending on December 15, 2025. The stock-based compensation expense and payroll withholding for the ESPP during the three and nine months ended September 30, 2025 were not material.

Incentive Plan Amendment

On May 7, 2025, the Company’s shareholders approved an amendment to the Digimarc Corporation 2018 Stock Incentive Plan (as amended, the “2018 Plan”) to, among other things, increase the number of shares authorized for issuance by 950 thousand shares.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

7. Earnings Per Share

The Company calculates basic and diluted earnings per share in accordance with ASC No. 260, “Earnings Per Share,” using the treasury stock method.

Basic earnings per share excludes dilution and is calculated by dividing earnings by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing earnings by the weighted-average number of common shares, as adjusted for the potentially dilutive effect of unvested RSUs and PRSUs. The dilutive effect of unvested RSUs and PRSUs is determined using the treasury stock method. RSAs are included in shares outstanding on the date of grant.

The following table reconciles earnings (loss) per share:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2025*			*2024*			*2025*			*2024*
Basic Earnings (Loss) per Share:
Net loss — basic	$	(8,152	)	$	(10,754	)	$	(28,102	)	$	(30,362	)
Weighted average shares outstanding — basic		21,709			21,435			21,614			21,187
Basic loss per share	$	(0.38	)	$	(0.50	)	$	(1.30	)	$	(1.43	)

Diluted Earnings (Loss) per Share:
Net loss — diluted	$	(8,152	)	$	(10,754	)	$	(28,102	)	$	(30,362	)
Weighted average shares outstanding — diluted		21,709			21,435			21,614			21,187
Diluted loss per share	$	(0.38	)	$	(0.50	)	$	(1.30	)	$	(1.43	)

The following table indicates the stock equivalents related to unvested RSUs and PRSUs that were anti-dilutive and excluded from diluted earnings (loss) per share calculations:

Three Months Ended September 30,

Nine Months Ended September 30,

2025

2024

2025

2024

Anti-dilutive shares due to net loss

—

8. Trade Accounts Receivable

Trade Accounts Receivable

Trade accounts receivables are recorded at the contractual or invoiced amount.

	*September 30,*			*December 31,*
	*2025*			*2024*
Trade accounts receivable, current	$	7,760		$	6,563
Trade accounts receivable, long-term		90			80
Allowance for doubtful accounts		(1,439	)		(151	)
Trade accounts receivable, net	$	6,411		$	6,492
Unpaid deferred revenue included in trade accounts receivable	$	1,503		$	2,590

Allowance for Doubtful Accounts

The Company’s accounts receivables are subject to concentrations of credit risk. The Company maintains an allowance for its doubtful accounts receivable to reflect any estimated credit losses. The allowance is established in accordance with the current expected credit loss model, which requires the estimation of expected credit losses over the contractual life of financial assets. The allowance is calculated using a forward-looking probability-weighted approach based on historical loss experience, current economic conditions, and reasonable and supportable forecasts. The Company records the allowance in “general and administrative” expense in the Consolidated Statements of Operations and Comprehensive Loss, up to the amount of revenue recognized to date for each account. Any incremental allowance is recorded as an offset to “deferred revenue” in the Consolidated Balance Sheets. Account receivables are written off and charged against the recorded allowance when the Company has exhausted collection efforts without success.

Unpaid Deferred Revenue

The unpaid deferred revenue that is included in trade accounts receivable is billed in accordance with the provisions of the contracts with the Company’s customers.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Major Customers

The following customers accounted for 10% or more of trade accounts receivable, net:

	*September 30,*			*December 31,*
	*2025*			*2024*
Company A		30	%		47	%
Company B		24	%		*
Company C		*			12	%

*	Less than 10%

9. Property and Equipment

Property and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred.

Depreciation on property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, generally two to ten years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life or the lease term.

	*September 30,*			*December 31,*
	*2025*			*2024*
Office furniture and fixtures	$	63		$	63
Software		6,022			5,476
Equipment		2,616			2,566
Leasehold improvements		227			203
Gross property and equipment		8,928			8,308
Less accumulated depreciation		(7,701	)		(7,268	)
Property and equipment, net	$	1,227		$	1,040

10. Goodwill

The Company performs its annual goodwill impairment test during the second quarter of each fiscal year or whenever events or changes in circumstances indicate that the carrying value may exceed the fair value. If the carrying value exceeds the estimated fair value, an impairment is recorded. 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. No impairment charges were recorded for the three and nine months ended September 30, 2025 and 2024.

Balance at December 31, 2024	$	8,532
Currency translation adjustments		528
Balance at September 30, 2025	$	9,060

11. Intangibles

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment charges were recorded for the three and nine months ended September 30, 2025 and 2024.

Patent costs associated with the application and award of patents in the U.S. and various other countries are capitalized and amortized on a straight-line basis over the term of the patents as determined at the award date, which varies depending on the pendency period of the application, but generally approximates seventeen years.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Amortization of intangible assets acquired is calculated using the straight-line method over the estimated useful lives of the assets.

	*Estimated Life*		*September 30,*			*December 31,*
	*(years)*		*2025*			*2024*
Capitalized patent costs		~17	$	9,243		$	9,174

Intangible assets acquired:
Purchased intellectual property		10		250			250
Developed technology		5		24,106			22,504
Customer relationships		10		11,519			10,754
Gross intangible assets				45,118			42,682
Accumulated amortization				(26,353	)		(20,491	)
Intangibles, net			$	18,765		$	22,191

The amortization of capitalized patent costs, purchased intellectual property, and developed technology is recorded in “cost of revenue” and the amortization of customer relationships is recorded in “operating expenses” in the Consolidated Statements of Operations and Comprehensive Loss.

Amortization expense on intangible assets was as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Amortization expense	$	1,627	$	1,589	$	4,789	$	4,678

For intangible assets recorded at September 30, 2025, the estimated future aggregate amortization expense for the years ending December 31, 2025 through December 31, 2029 is as follows:

	*Amortization*
As of September 30, 2025	*Expense*
Remaining in 2025	$	1,632
2026		6,470
2027		1,615
2028		1,606
2029		1,578

12. Leases

The Company accounts for leases in accordance with ASC No. 842, “Leases.”

The Company entered into a sublease agreement and lease extension agreement for office space in Beaverton, Oregon in February 2022 to move the Company’s corporate headquarters. The term of the sublease and lease extension runs through September 2030, with remaining rent payments as of September 30, 2025, totaling $6,817 plus operating expenses, payable in monthly installments. The first 26 months of rent payments and operating expenses were abated to cover the remaining lease term on the Company’s former corporate headquarters.

All of the Company’s leases are operating leases. The following table provides additional details of leases presented in the Consolidated Balance Sheets:

	*September 30,*			*December 31,*
	*2025*			*2024*
Lease right of use assets	$	3,350		$	3,659
Lease liabilities, current	$	869		$	781
Lease liabilities, long-term	$	4,549		$	5,213

Weighted-average remaining life (in years)		5.0			5.7
Weighted-average discount rate		9	%		9	%

The current lease liabilities are included in “accounts payable and other accrued liabilities” in the Consolidated Balance Sheets.

The carrying value of the lease right of use assets is evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. No impairment charges were recorded for the three and nine months ended September 30, 2025 and 2024.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Operating lease expense is included in “operating expenses” in the Consolidated Statements of Operations and Comprehensive Loss and in “cash flows from operating activities” in the Consolidated Statements of Cash Flows. The operating leases include variable lease payments, which are included in operating lease expense. Additional details of the Company’s operating leases are presented in the following table:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2025*		*2024*		*2025*		*2024*
Operating lease expense	$	356	$	363	$	1,098	$	1,110
Cash paid for operating leases	$	447	$	445	$	1,365	$	1,209

The table below reconciles the aggregate cash payment obligations for the next five years and total of the remaining years for the operating lease liability recorded in the Consolidated Balance Sheets as of September 30, 2025:

	*Cash*
	*Payment*
As of September 30, 2025	*Obligations*
Remaining in 2025	$	332
2026		1,356
2027		1,397
2028		1,296
2029		1,389
Thereafter		1,066
Total lease payments		6,836
Imputed interest		(1,418	)
Total minimum lease payments	$	5,418

13. Accounts Payable and Accrued liabilities

The components of accounts payable and accrued liabilities are summarized below:

	*September 30,*		*December 31,*
	*2025*		*2024*
Accounts payable	$	2,884	$	2,378
Accrued liabilities		1,842		1,959
Lease liabilities, current		869		781
Total accounts payable and other accrued liabilities	$	5,595	$	5,118

14. Reorganization

On February 26, 2025, the Company announced a reduction of its global workforce to streamline the Company’s team structure to better align with its long-term growth initiatives and profitability objectives. All associated costs with the reorganization are recorded as “operating expenses” in the Consolidated Statements of Operations and Comprehensive Loss. Corresponding liabilities are recorded as “accrued liabilities” in the Consolidated Balance Sheets. During the nine months ended September 30, 2025, the Company incurred cash severance costs totaling $3,230, reported as “cash compensation” in Note 4 Segment Information, including $1,622 related to research, development and engineering, $980 related to sales and marketing, and $628 related to general and administration.

The following table provides the details of costs and liabilities associated with the reorganization announced on February 26, 2025:

Balance at December 31, 2024	$	—
Costs incurred		3,230
Cash paid		(3,220	)
Balance at September 30, 2025	$	10

15. Other Income

The following table provides activity in other income, net:

	*Three Months Ended September 30,*					*Nine Months Ended September 30,*
	*2025*		*2024*			*2025*		*2024*
Interest income	$	135	$	486		$	567	$	1,471
Refundable tax credit		61		152			148		402
Foreign currency gains (losses)		21		(21	)		81		(5	)
Total other income, net	$	217	$	617		$	796	$	1,868

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16. Income Taxes

The provision for income taxes reflects current taxes and deferred taxes. The effective tax rate for each of the nine months ended September 30, 2025 and 2024 was 0%.

The valuation allowance against net deferred tax assets as of September 30, 2025, was $112,750, an increase of $8,389 from $104,361 as of December 31, 2024. The Company continues to provide for a valuation allowance to offset its net deferred tax assets until such time it is more likely than not the tax assets or portions thereof will be realized.

Excess tax deficiencies of $948 and $102 were recognized in the provision for income taxes for the three months ended September 30, 2025 and 2024, respectively, which were offset by $948 and $102 of valuation allowance, respectively.

An excess tax deficiency of $1,827 and an excess tax benefit of $1,410 were recognized in the provision for income taxes for the nine months ended September 30, 2025 and 2024, respectively, which were offset by $1,827 and $1,410 of valuation allowance, respectively.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”), which includes a broad range of tax reform provisions, was signed into law in the United States, which includes a new Internal Revenue Code ("IRC") Section 174A. Under Section 174A, commencing with tax years beginning after December 31, 2024, domestic research or experimental expenditures may be deducted in the current period rather than capitalized and amortized over multiple years, as previously required under IRC Section 174. As a result of this legislation, the Company intends to deduct its domestic Section 174A expenditures beginning in its 2025 taxable year. The Company does not expect the OBBBA to have a material impact on its effective tax rate, financial condition, or results of operations in 2025.

17. Commitments and Contingencies

Certain of the Company’s product and services agreements include an indemnification provision for claims from third parties relating to the Company’s intellectual property. Such indemnification provisions are accounted for in accordance with ASC No. 450 “Contingencies.” To date, there have been no claims made under such indemnification provisions.

On May 8, 2025, a class action lawsuit captioned Ullom v. Digimarc Corp., et al., No: 3:25-cv-00779-JR (the “Ullom Action”) was filed against the Company in the United States District Court for the District of Oregon. The complaint purports to assert claims against the Company and its Chief Executive Officer and Chief Financial Officer pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, on behalf of a putative class of investors who purchased or otherwise acquired the Company’s shares between May 2, 2024 and February 26, 2025 (the “class period”). The Ullom Action seeks to recover damages allegedly caused by purported misstatements and omissions regarding the renewal status of a commercial contract, claiming that these alleged misstatements and omissions artificially inflated the price paid for our common stock during the class period.

Subsequently, four derivative lawsuits were filed nominally on the Company’s behalf, including three in the United States District Court for the District of Oregon on August 29, 2025 (as amended September 2, 2025) (Franchi v. McCormack et al., No. 3:25-cv-01543-AN), October 7, 2025 (Chadwick v. McCormack et al., No. 3:25-cv-01838-JR), October 14, 2025 (Jensen v. McCormack et al., No. 3:25-cv-01891-SB), and one in the Circuit Court of the State of Oregon for the County of Multnomah on October 23, 2025 (Johnson v. McCormack et al., No. 25-cv-56998), which are based on the same alleged facts and circumstances as the above-referenced securities class action and are against the Company’s Chief Executive Officer, Chief Financial Officer and directors. The derivative actions collectively assert claims pursuant to Sections 10(b), 14(a), and 20(a) of the Exchange Act, as well as for breaches of fiduciary duties, aiding and abetting breaches of fiduciary duties, unjust enrichment, and waste of corporate assets. Each of the four derivative lawsuits seeks to recover damages on the Company’s behalf and alleges that a legally required pre-suit demand on the Board of Directors would be futile and should be excused.

On November 4, 2025, the Chadwick, Jensen and Franchi actions were consolidated and stayed pending resolution of the Company’s anticipated motion to dismiss in the Ullom Action.

These cases are at an early stage. The Company believes it has defenses to the claims and is responding accordingly.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future events or the future financial performance of Digimarc that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. See the discussion regarding forward-looking statements included in this Quarterly Report on Form 10-Q under the caption “Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.”

The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Readers are also urged to carefully review and consider the disclosures made in Part II, Item 1A (“Risk Factors”) of this Quarterly Report on Form 10-Q and in the audited consolidated financial statements and related notes included in our 2024 Annual Report, and other reports and filings we have made with the SEC.

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “Company,” “Digimarc,” “we,” “our,” and “us” refer to Digimarc Corporation.

All dollar amounts within the tables below are in thousands. The percentages within the tables may not sum to 100% due to rounding.

Digimarc, Digimarc Barcode, The Barcode of Everything, Barcode of Everything, and the circle-d logo are registered trademarks of Digimarc Corporation. EVRYTHNG and EVRYTHNG PRODUCT CLOUD are registered trademarks of EVRYTHNG Limited (“EVRYTHNG”), a wholly owned subsidiary of Digimarc.

Overview

Digimarc, an Oregon corporation, is a pioneer and global leader in digital watermarking technologies. For nearly 30 years, Digimarc innovations and intellectual property in digital watermarking have been deployed in solutions built upon one or both of the following two things: the identification and the authentication of physical and digital items, often at massive scale, and often where other methods of identification or authentication don’t work well or don’t work at all.

•

Digimarc Engage activates products and multimedia to create and leverage an interactive, fully owned communications channel directly with consumers. Digimarc delivers dynamic, GS1 Digital Link-compliant QR codes and hyperlinks that provide contextual redirection capabilities for multiple consumer experiences (including personalized and automated loyalty and rewards programs) based on a variety of factors such as time and location or previous behavior. Connecting engagements across the physical and digital worlds in a singular view results in powerful new capabilities and insights for brands.

•

Digimarc has maintained a relationship with a consortium of central banks for nearly 30 years, providing trusted technology to help deter digital counterfeiting of currency. The relationship was the first commercially successful large-scale use of our technologies and protects billions of banknotes in circulation globally.

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Our intellectual property contains many innovations in digital watermarking, content and object recognition, product authentication, and related fields. To protect our inventions, we have implemented an extensive intellectual property protection program that relies on a combination of patent, copyright, trademark and trade secret laws, and nondisclosure agreements and other contracts. As a result, we believe we have one of the world’s most extensive patent portfolios in digital watermarking and related fields, with approximately 750 U.S. and foreign patents granted and applications pending as of September 30, 2025. The patents in our portfolio each have a life of approximately 20 years from the patent’s effective filing date.

Critical Accounting Policies and Estimates

Detailed information about our critical accounting policies and estimates is set forth in Part III, Item 15 of our 2024 Annual Report (“Exhibits and Financial Statement Schedules”), in “Note 1: Description of Business and Summary of Significant Accounting Policies,” which is incorporated by reference into this Quarterly Report on Form 10-Q.

Results of Operations

The following table presents Consolidated Statements of Operations data for the periods indicated as a percentage of total revenue. Unless stated otherwise, all references in this Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to the three and nine months ended September 30, 2025, and all changes discussed with respect to such period reflect changes compared to the three and nine months ended September 30, 2024.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Percentages are percent of total revenue
Revenue:
Subscription		60	%		56	%		58	%		58	%
Service		40	%		44	%		42	%		42	%
Total revenue		100	%		100	%		100	%		100	%
Cost of revenue:
Subscription ⁽¹⁾		8	%		8	%		8	%		7	%
Service ⁽¹⁾		17	%		17	%		16	%		17	%
Amortization expense on acquired intangible assets		16	%		12	%		14	%		12	%
Total cost of revenue		42	%		38	%		39	%		36	%
Gross profit		58	%		62	%		61	%		64	%
Operating expenses:
Sales and marketing		37	%		60	%		45	%		56	%
Research, development and engineering		57	%		69	%		66	%		67	%
General and administrative		70	%		51	%		62	%		46	%
Amortization expense on acquired intangible assets		4	%		3	%		3	%		3	%
Total operating expenses		168	%		183	%		176	%		172	%
Operating loss		(110	)%		(120	)%		(115	)%		(108	)%
Other income, net		3	%		7	%		3	%		6	%
Loss before income taxes		(107	)%		(114	)%		(112	)%		(102	)%
Provision for income taxes		(—	)%		(—	)%		(—	)%		(—	)%
Net loss		(107	)%		(114	)%		(112	)%		(102	)%

⁽¹⁾	Cost of revenue for Subscription and Service excludes amortization expense on acquired intangible assets.

Summary

Our commercial subscription revenue in fiscal 2025 has been negatively impacted by the expiration of a commercial contract that ended in April 2025 with an international customer. The contract contributed $0.8 million and $2.5 million of subscription revenue during the three and nine months ended September 30, 2024, compared to $0.0 million and $1.1 million of subscription revenue during the three and nine months ended September 30, 2025. Our commercial subscription revenue in fiscal 2025 has also been negatively impacted by the expiration of a commercial contract that ended in June 2024 with a domestic customer. The contract contributed $0.0 million and $2.1 million of subscription revenue during the three and nine months ended September 30, 2024, compared to $0.0 million of subscription revenue for both the three and nine months ended September 30, 2025. Our commercial subscription revenue in the fourth quarter of fiscal 2025 will also be impacted by the conclusion of a contract renegotiation with a domestic customer that will negatively impact future revenue by $3.1 million on an annualized basis.

Our government service revenue in fiscal 2025 has been negatively impacted by a smaller approved budget by the Central Banks for program work in 2025. We expect government service revenue in fiscal 2025 to be $1.7 million to $1.8 million lower than in fiscal 2024.

Total revenue for the three months ended September 30, 2025, decreased $1.8 million, to $7.6 million, compared to $9.4 million for the corresponding three months ended September 30, 2024. Subscription revenue decreased $0.7 million, primarily reflecting a decrease of $0.8 million from the expiration of the commercial contract in April 2025 referenced above. Service revenue decreased $1.1 million, primarily reflecting $0.7 million of lower government service revenue from the Central Banks and $0.4 million of lower commercial service revenue from HolyGrail 2.0 recycling projects.

Total revenue for the nine months ended September 30, 2025, decreased $4.8 million, to $25.0 million, compared to $29.8 million for the corresponding nine months ended September 30, 2024. Subscription revenue decreased $2.9 million, primarily reflecting a decrease of $3.5 million from the expiration of the commercial contracts in June 2024 and April 2025 referenced above, partially offset by higher commercial subscription revenue from new and existing commercial contracts. Service revenue decreased $1.9 million, reflecting lower government service revenue from the Central Banks.

We expect our expenses in fiscal 2025 to be significantly lower than fiscal 2024 due to the reorganization we announced on February 26, 2025, which reduced our cash expenses by approximately $16.5 million on an annualized basis. We also identified a total of approximately $5.5 million of other annualized cash cost savings that have now been implemented but not yet fully realized in the interim operating results for the period ended September 30, 2025.

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Total operating expenses for the three months ended September 30, 2025, decreased $4.5 million, to $12.8 million, compared to $17.3 million for the corresponding three months ended September 30, 2024. The decrease in operating expenses primarily reflects $5.4 million of lower cash compensation costs largely due to lower headcount and $0.3 million of lower software and hardware costs, partially offset by $1.0 million of higher stock compensation costs, $0.3 million of higher other costs, and a $0.3 million lower allocation out of operating expenses primarily due to lower billable service hours.

Total operating expenses for the nine months ended September 30, 2025, decreased $7.1 million, to $44.1 million, compared to $51.2 million for the corresponding nine months ended September 30, 2024. The decrease in operating expenses primarily reflects $8.1 million of lower cash compensation costs and $0.6 million of lower software and hardware costs, partially offset by higher professional service costs of $0.9 million and higher stock compensation expense of $0.8 million. The $8.1 million of lower cash compensation costs primarily reflects $12.1 million of lower compensation costs largely due to lower headcount, partially offset by $3.2 million of higher cash severance costs incurred as a result of the reorganization and a $0.8 million lower allocation out of operating expenses primarily due to lower billable service hours.

Revenue

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar			Percent
	2025			2024			Increase/(Decrease)			Increase/(Decrease)			2025			2024			Increase/(Decrease)			Increase/(Decrease)
Revenue:
Subscription	$	4,567		$	5,252		$	(685	)		(13	)%	$	14,505		$	17,394		$	(2,889	)		(17	)%
Service		3,060			4,191			(1,131	)		(27	)%		10,500			12,366			(1,866	)		(15	)%
Total	$	7,627		$	9,443		$	(1,816	)		(19	)%	$	25,005		$	29,760		$	(4,755	)		(16	)%
Revenue (as % of total revenue):
Subscription		60	%		56	%								58	%		58	%
Service		40	%		44	%								42	%		42	%
Total		100	%		100	%								100	%		100	%

Subscription

Subscription revenue consists primarily of revenue earned from subscription fees for access to our SaaS platform and products and, to a lesser extent, licensing fees for our software products. The majority of subscription contracts are recurring, paid in advance and recognized over the term of the subscription, which is typically one to three years.

The $0.7 million decrease in subscription revenue for the three months ended September 30, 2025, compared to the corresponding three months ended September 30, 2024, primarily reflects a decrease of $0.8 million from the expiration of a commercial contract in April 2025.

The $2.9 million decrease in subscription revenue for the nine months ended September 30, 2025, compared to the corresponding nine months ended September 30, 2024, primarily reflects a decrease of $3.5 million from the expiration of commercial contracts in June 2024 and April 2025, partially offset by higher commercial subscription revenue from new and existing commercial contracts.

Service

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 one month after the services are provided. Service contracts can range from days to several years in length. Our contract with the Central Banks, which accounts for the majority of our service revenue, has a contract term through December 31, 2029. The contract is subject to work plans that are reviewed and agreed upon quarterly. The contract provides for predetermined billing rates, which are adjusted annually to account for cost of living variables, and provides for the reimbursement of third party costs incurred to support the work plans.

The $1.1 million decrease in service revenue for the three months ended September 30, 2025, compared to the corresponding three months ended September 30, 2024, primarily reflects $0.7 million of lower government service revenue from the Central Banks and $0.4 million of lower commercial service revenue from HolyGrail 2.0 recycling projects.

The $1.9 million decrease in service revenue for the nine months ended September 30, 2025, compared to the corresponding nine months ended September 30, 2024, primarily reflects $1.9 million of lower government service revenue from the Central Banks.

Revenue by geography

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar			Percent
	2025			2024			Increase/(Decrease)			Increase/(Decrease)			2025			2024			Increase/(Decrease)			Increase/(Decrease)
Revenue by geography:
Domestic	$	2,308		$	2,004		$	304			15	%	$	6,781		$	8,349		$	(1,568	)		(19	)%
International		5,319			7,439			(2,120	)		(28	)%		18,224			21,411			(3,187	)		(15	)%
Total	$	7,627		$	9,443		$	(1,816	)		(19	)%	$	25,005		$	29,760		$	(4,755	)		(16	)%
Revenue (as % of total revenue):
Domestic		30	%		21	%								27	%		28	%
International		70	%		79	%								73	%		72	%
Total		100	%		100	%								100	%		100	%

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Domestic

The $0.3 million increase in domestic revenue for the three months ended September 30, 2025, compared to the corresponding three months ended September 30, 2024, primarily reflects higher commercial subscription revenue from new and existing commercial contracts with domestic customers.

The $1.6 million decrease in domestic revenue for the nine months ended September 30, 2025, compared to the corresponding nine months ended September 30, 2024, primarily reflects a decrease of $2.1 million from the expiration of a commercial subscription contract in June 2024 with a domestic customer, partially offset by higher subscription revenue from new and existing commercial contracts with domestic customers.

International

The $2.1 million decrease in international revenue for the three months ended September 30, 2025, compared to the corresponding three months ended September 30, 2024, primarily reflects a decrease of $0.8 million from the expiration of a commercial subscription contract in April 2025 with an international customer, $0.7 million of lower government service revenue from the Central Banks and $0.4 million of lower commercial service revenue from HolyGrail 2.0 recycling projects.

The $3.2 million decrease in international revenue for the nine months ended September 30, 2025, compared to the corresponding nine months ended September 30, 2024, primarily reflects $1.9 million of lower government service revenue from the Central Banks and a decrease of $1.4 million from the expiration of a commercial subscription contract in April 2025 with an international customer.

Revenue by market

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar			Percent
	2025			2024			Increase/(Decrease)			Increase/(Decrease)			2025			2024			Increase/(Decrease)			Increase/(Decrease)
Commercial:
Subscription	$	4,267		$	4,952		$	(685	)		(14	)%	$	13,605		$	16,494		$	(2,889	)		(18	)%
Service		41			430			(389	)		(90	)%		876			864			12			1	%
Total Commercial	$	4,308		$	5,382		$	(1,074	)		(20	)%	$	14,481		$	17,358		$	(2,877	)		(17	)%

Government:
Subscription	$	300		$	300		$	—			—	%	$	900		$	900		$	—			—	%
Service		3,019			3,761			(742	)		(20	)%		9,624			11,502			(1,878	)		(16	)%
Total Government	$	3,319		$	4,061		$	(742	)		(18	)%	$	10,524		$	12,402		$	(1,878	)		(15	)%
Total	$	7,627		$	9,443		$	(1,816	)		(19	)%	$	25,005		$	29,760		$	(4,755	)		(16	)%

Revenue (as % of total revenue):
Commercial		56	%		57	%								58	%		58	%
Government		44	%		43	%								42	%		42	%
Total		100	%		100	%								100	%		100	%

Commercial

The $1.1 million decrease in commercial revenue for the three months ended September 30, 2025, compared to the corresponding three months ended September 30, 2024, primarily reflects a decrease of $0.8 million from the expiration of a commercial subscription contract in April 2025 and $0.4 million of lower commercial service revenue from HolyGrail 2.0 recycling projects.

The $2.9 million decrease in commercial revenue for the nine months ended September 30, 2025, compared to the corresponding nine months ended September 30, 2024, primarily reflects a decrease of $3.5 million from the expiration of commercial subscription contracts in June 2024 and April 2025, partially offset by higher commercial subscription revenue from new and existing commercial contracts.

Government

The $0.7 million decrease in government revenue for the three months ended September 30, 2025, compared to the corresponding three months ended September 30, 2024, reflects $0.7 million of lower government service revenue from the Central Banks.

The $1.9 million decrease in government revenue for the nine months ended September 30, 2025, compared to the corresponding nine months ended September 30, 2024, reflects $1.9 million of lower government service revenue from the Central Banks.

Annual Recurring Revenue (“ARR”)

	As of		As of		Dollar			Percent
	September 30,		September 30,		Increase			Increase
	2025		2024		(Decrease)			(Decrease)
ARR	$	15,813	$	18,674	$	(2,861	)		(15	)%

ARR decreased $2.9 million from September 30, 2024 to September 30, 2025, reflecting the expiration of a commercial contract in April 2025 that accounted for $3.5 million of ARR, partially offset by increases to ARR from new and existing commercial contracts. ARR will be negatively impacted by $3.1 million in the fourth quarter of fiscal 2025, reflecting the conclusion of a contract renegotiation with a domestic customer.

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We provide an ARR performance metric to help investors better understand and assess the performance of our business because our mix of revenue generated from recurring sources has increased in recent years. ARR is calculated as the aggregation of annualized subscription fees from all of our commercial contracts as of the measurement date. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with, or to replace, either of those items. ARR is not a forecast and the contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.

Cost of revenue

Subscription. Cost of subscription revenue primarily includes:

•

internet cloud hosting costs and image search data fees to support our subscription products; and

•

amortization of capitalized patent costs and patent maintenance fees.

Service. Cost of service revenue primarily includes:

•

compensation, benefits, incentive compensation in the form of cash and stock-based compensation and related costs of our software developers, quality assurance personnel, professional services team and other personnel where we bill our customers for time and materials costs;

•

payments to outside contractors that are billed to customers;

•

charges for equipment and software directly used by customers;

•

depreciation for equipment and software directly used by customers; and

•

travel costs that are billed to customers.

Amortization expense on acquired intangible assets includes:

•

amortization expense recognized on the developed technology intangible asset acquired in the EVRYTHNG acquisition.

Gross profit

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar			Percent
	2025			2024			Increase/(Decrease)			Increase/(Decrease)			2025			2024			Increase/(Decrease)			Increase/(Decrease)
Gross Profit:
Subscription ⁽¹⁾	$	3,925		$	4,517		$	(592	)		(13	)%	$	12,404		$	15,189		$	(2,785	)		(18	)%
Service ⁽¹⁾		1,730			2,553			(823	)		(32	)%		6,380			7,228			(848	)		(12	)%
Amortization expense on acquired intangible assets		(1,209	)		(1,173	)		(36	)		(3	)%		(3,546	)		(3,445	)		(101	)		(3	)%
Total	$	4,446		$	5,897		$	(1,451	)		(25	)%	$	15,238		$	18,972		$	(3,734	)		(20	)%
Gross Profit Margin:
Subscription ⁽¹⁾		86	%		86	%								86	%		87	%
Service ⁽¹⁾		57	%

Digimarc CORP 10-Q