Form 10-Q - Quarterly report [Sections 13 or 15(d)]

Table of Contents

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, 2023

☐ 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 2, 2023, there were 20,357,870 shares of the registrant's common stock, par value $0.001 per share, outstanding.

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PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):	3
	Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3
	Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022	4
	Consolidated Statements of Shareholders' Equity for the three and nine months ended September 30, 2023 and 2022	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 4.	Controls and Procedures	38

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
SIGNATURES		41

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGIMARC CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(UNAUDITED)

	*September 30,*			*December 31,*
	*2023*			*2022*
ASSETS
Current assets:
Cash and cash equivalents	$	32,335		$	33,598
Marketable securities		996			18,944
Trade accounts receivable, net		7,042			5,427
Other current assets		4,578			6,172
Total current assets		44,951			64,141
Property and equipment, net		1,656			2,390
Intangibles, net		28,977			33,170
Goodwill		8,323			8,229
Lease right of use assets		4,108			4,720
Other assets		827			1,127
Total assets	$	88,842		$	113,777
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other accrued liabilities	$	6,207		$	5,989
Deferred revenue		7,315			4,145
Total current liabilities		13,522			10,134
Long-term lease liabilities		6,170			5,977
Other long-term liabilities		267			76
Total liabilities		19,959			16,187
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at September 30, 2023 and December 31, 2022)		50			50
Common stock (par value $0.001 per share, 50,000 authorized, 20,356 and 20,260 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)		20			20
Additional paid-in capital		373,844			367,692
Accumulated deficit		(301,195	)		(265,809	)
Accumulated other comprehensive loss		(3,836	)		(4,363	)
Total shareholders’ equity		68,883			97,590
Total liabilities and shareholders’ equity	$	88,842		$	113,777

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,*
	*2023*			*2022*			*2023*			*2022*
Revenue:
Subscription	$	4,811		$	4,086		$	13,374		$	11,121
Service		4,183			3,735			12,193			11,858
Total revenue		8,994			7,821			25,567			22,979
Cost of revenue:
Subscription ⁽¹⁾		698			1,006			2,264			2,934
Service ⁽¹⁾		1,938			1,602			5,621			5,177
Amortization expense on acquired intangible assets		1,135			1,048			3,346			3,362
Total cost of revenue		3,771			3,656			11,231			11,473
Gross profit		5,223			4,165			14,336			11,506
Operating expenses:
Sales and marketing		5,366			7,684			16,770			23,702
Research, development and engineering		6,308			7,575			20,295			19,731
General and administrative		4,433			4,132			13,412			15,027
Amortization expense on acquired intangible assets		272			301			800			964
Impairment of lease right of use assets and leasehold improvements		—			—			250			574
Total operating expenses		16,379			19,692			51,527			59,998
Operating loss		(11,156	)		(15,527	)		(37,191	)		(48,492	)
Other income, net		478			623			1,870			1,214
Loss before income taxes		(10,678	)		(14,904	)		(35,321	)		(47,278	)
Provision for income taxes		(45	)		(26	)		(65	)		(72	)
Net loss	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)

Loss per share:
Loss per share — basic	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)
Loss per share — diluted	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)
Weighted average shares outstanding — basic		20,217			19,721			20,158			18,877
Weighted average shares outstanding — diluted		20,217			19,721			20,158			18,877

Comprehensive loss:
Unrealized gain (loss) on marketable securities, net of tax of $0	$	—		$	51		$	144		$	(199	)
Foreign currency translation adjustment, net of tax of $0		(983	)		(3,118	)		383			(6,737	)
Other comprehensive income (loss)	$	(983	)	$	(3,067	)	$	527		$	(6,936	)
Net loss		(10,723	)		(14,930	)		(35,386	)		(47,350	)
Comprehensive loss	$	(11,706	)	$	(17,997	)	$	(34,859	)	$	(54,286	)

⁽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, 2023:
BALANCE AT JUNE 30, 2023		10	$	50		20,334		$	20	$	371,893		$	(290,472	)	$	(2,853	)	$	78,638
Issuance of restricted common stock		—		—		—			—		—			—			—			—
Vesting of restricted stock units		—		—		44			—		—			—			—			—
Forfeiture of restricted common stock		—		—		(1	)		—		—			—			—			—
Purchase of common stock		—		—		(21	)		—		(756	)		—			—			(756	)
Stock-based compensation		—		—		—			—		2,707			—			—			2,707
Unrealized loss on marketable securities		—		—		—			—		—			—			—			—
Foreign currency translation adjustments		—		—		—			—		—			—			(983	)		(983	)
Net loss		—		—		—			—		—			(10,723	)		—			(10,723	)
BALANCE AT SEPTEMBER 30, 2023		10	$	50		20,356		$	20	$	373,844		$	(301,195	)	$	(3,836	)	$	68,883

Three months ended September 30, 2022:
BALANCE AT JUNE 30, 2022		10	$	50		19,959		$	20	$	357,509		$	(238,431	)	$	(3,869	)	$	115,279
Issuance of common stock		—		—		22			—		872			—			—			872
Issuance of restricted common stock		—		—		14			—		—			—			—			—
Vesting of restricted stock units		—		—		102			—		—			—			—			—
Forfeiture of restricted common stock		—		—		(5	)		—		—			—			—			—
Purchase of common stock		—		—		(55	)		—		(923	)		—			—			(923	)
Stock-based compensation		—		—		—			—		3,597			—			—			3,597
Unrealized gain on marketable securities		—		—		—			—		—			—			51			51
Foreign currency translation adjustments		—		—		—			—		—			—			(3,118	)		(3,118	)
Net loss		—		—		—			—		—			(14,930	)		—			(14,930	)
BALANCE AT SEPTEMBER 30, 2022		10	$	50		20,037		$	20	$	361,055		$	(253,361	)	$	(6,936	)	$	100,828

Nine months ended September 30, 2023:
BALANCE AT DECEMBER 31, 2022		10	$	50		20,260		$	20	$	367,692		$	(265,809	)	$	(4,363	)	$	97,590
Issuance of common stock		—		—		10			—		—			—			—			—
Issuance of restricted common stock		—		—		45			—		—			—			—			—
Vesting of restricted stock units		—		—		117			—		—			—			—			—
Vesting of performance stock units		—		—		2			—		—			—			—			—
Forfeiture of restricted common stock		—		—		(6	)		—		—			—			—			—
Purchase of common stock		—		—		(72	)		—		(2,036	)		—			—			(2,036	)
Stock-based compensation		—		—		—			—		8,188			—			—			8,188
Unrealized gain on marketable securities		—		—		—			—		—			—			144			144
Foreign currency translation adjustments		—		—		—			—		—			—			383			383
Net loss		—		—		—			—		—			(35,386	)		—			(35,386	)
BALANCE AT SEPTEMBER 30, 2023		10	$	50		20,356		$	20	$	373,844		$	(301,195	)	$	(3,836	)	$	68,883

Nine months ended September 30, 2022:
BALANCE AT DECEMBER 31, 2021		10	$	50		16,940		$	17	$	261,324		$	(206,011	)	$	—		$	55,380
Issuance of common stock		—		—		3,044			3		90,608			—			—			90,611
Issuance of warrants for acquisition		—		—		—			—		1,601			—			—			1,601
Issuance of restricted common stock		—		—		54			—		—			—			—			—
Vesting of restricted stock units		—		—		119			—		—			—			—			—
Forfeiture of restricted common stock		—		—		(26	)		—		—			—			—			—
Purchase of common stock		—		—		(94	)		—		(1,897	)		—			—			(1,897	)
Stock-based compensation		—		—		—			—		9,419			—			—			9,419
Unrealized loss on marketable securities		—		—		—			—		—			—			(199	)		(199	)
Foreign currency translation adjustments		—		—		—			—		—			—			(6,737	)		(6,737	)
Net loss		—		—		—			—		—			(47,350	)		—			(47,350	)
BALANCE AT SEPTEMBER 30, 2022		10	$	50		20,037		$	20	$	361,055		$	(253,361	)	$	(6,936	)	$	100,828

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,*
	*2023*			*2022*
Cash flows from operating activities:
Net loss	$	(35,386	)	$	(47,350	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and write-off of property and equipment		911			1,036
Amortization of acquired intangible assets		4,146			4,326
Amortization and write-off of other intangible assets		709			493
Amortization of lease right of use assets under operating leases		426			768
Stock-based compensation		8,146			9,310
Impairment of lease right of use assets and leasehold improvements		250			574
Changes in operating assets and liabilities:
Trade accounts receivable		(1,581	)		(241	)
Other current assets		1,688			(2,233	)
Other assets		279			(611	)
Accounts payable and other accrued liabilities		299			(2,153	)
Deferred revenue		3,298			233
Lease liability and other long-term liabilities		136			(1,040	)
Net cash used in operating activities		(16,679	)		(36,888	)
Cash flows from investing activities:
Net cash paid for acquisition		—			(3,512	)
Purchase of property and equipment		(208	)		(783	)
Capitalized patent costs		(295	)		(404	)
Proceeds from maturities of marketable securities		26,696			17,498
Purchases of marketable securities		(8,664	)		(5,873	)
Net cash provided by investing activities		17,529			6,926
Cash flows from financing activities:
Issuance of common stock, net of issuance costs		—			58,220
Purchase of common stock		(2,036	)		(1,560	)
Repayment of loans		(33	)		(32	)
Net cash (used in) provided by financing activities		(2,069	)		56,628
Effect of exchange rate on cash		(44	)		(100	)
Net (decrease) increase in cash and cash equivalents		(1,263	)		26,566
Cash and cash equivalents at beginning of period		33,598			13,789
Cash and cash equivalents at end of period	$	32,335		$	40,355
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	138		$	90
Supplemental schedule of non-cash activities:
Property and equipment and patent costs in accounts payable	$	14		$	(21	)
Stock-based compensation capitalized to software and patent costs	$	42		$	109
Purchase of common stock in accounts payable	$	—		$	(337	)
Common stock issued for acquisition	$	—		$	32,393
Warrants issued for acquisition	$	—		$	1,601
Right of use assets obtained in exchange for lease obligations	$	31		$	5,176

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 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 (SaaS) cloud-based platform for digitizing products and aggregating their interactions. Product digitization, the act of creating and connecting a digital twin to a physical or digital item via a digital watermark, Quick Response ("QR") code, and/or other digital carrier, enables products to connect with the web and interact with consumers and digital devices. The product's digital twin that comprises events and attributes from and about the product can be customized and automated to deliver unique experiences that benefits customers, brands, retailers, and other stakeholders across a wide variety of digital applications, while capturing a record of every interaction.

The Digimarc product suite is built on top of the Digimarc Illuminate platform to address specific business needs and power a trusted and scalable ecosystem in areas like automation, consumer trust and authenticity, and sustainability. 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 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 and digital assets are genuine and in the right place. Digimarc's technology protects digital images, audio, 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 or digital watermarks, 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 and on-package QR codes to provide an easier, frictionless shopping experience and to comply with upcoming industry standards. 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.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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.

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.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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

September 30, 2023	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	6,820	$	—	$	—	$	6,820
U.S. Treasuries		—		13,048		—		13,048
Commercial Paper		—		6,361		—		6,361
Federal agency notes		—		5,084		—		5,084
Total	$	6,820	$	24,493	$	—	$	31,313

December 31, 2022	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	2,073	$	—	$	—	$	2,073
Commercial paper		—		35,468		—		35,468
Corporate notes		—		8,432		—		8,432
Federal agency notes		—		4,423		—		4,423
Total	$	2,073	$	48,323	$	—	$	50,396

The fair value maturities of the Company's cash equivalents and marketable securities as of September 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	$	31,313	$	31,313	$	—	$	—	$	—

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 U.S. Treasuries, money market securities, commercial paper, and federal agency notes totaling $30,317 and $31,452 at September 30, 2023 and December 31, 2022, respectively. Cash equivalents are carried at either cost or fair value, depending on the type of security.

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 one to three years.

•

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.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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 September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Commercial:
Subscription	$	4,511	$	3,786	$	12,474	$	10,033
Service		213		389		849		1,851
Total Commercial		4,724		4,175		13,323		11,884
Government:
Subscription	$	300	$	300	$	900	$	1,088
Service		3,970		3,346		11,344		10,007
Total Government		4,270		3,646		12,244		11,095
Total	$	8,994	$	7,821	$	25,567	$	22,979

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:

	*September 30,*		*December 31,*
	*2023*		*2022*
Contract acquisition costs, current	$	170	$	197
Contract acquisition costs, long-term		3		104
Total	$	173	$	301

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,*
	*2023*		*2022*
Deferred revenue, current	$	7,315	$	4,145
Deferred revenue, long-term		169		15
Total	$	7,484	$	4,160

The Company recognized $3,641 of revenue during the nine months ended September 30, 2023, that was included in the contract liability balance as of December 31, 2022.

The aggregate amount of the transaction prices from contractual obligations that are unsatisfied or partially unsatisfied was $33,129 and $29,600 as of September 30, 2023, and December 31, 2022, respectively.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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 September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Domestic	$	2,921	$	2,889	$	8,541	$	7,259
International ⁽¹⁾		6,073		4,932		17,026		15,720
Total	$	8,994	$	7,821	$	25,567	$	22,979

⁽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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Customer A		47	%		46	%		48	%		47	%
Customer B		21	%		23	%		21	%		15	%

Long-Lived Assets by Geographical Area

Long-lived assets by geographic area were as follows:

	*September 30,*		*December 31,*
	*2023*		*2022*
United States	$	1,616	$	2,324
Europe		40		66
Total	$	1,656	$	2,390

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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 no stock options granted during the nine months ended September 30, 2023. There were 1 stock options granted during the nine months ended September 30, 2022, as replacement equity awards for vested stock options held by EVRYTHNG employees.

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.

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 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 three 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 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,*
	*2023*		*2022*		*2023*			*2022*
Stock price	$	—	$	—	$	22.37		$	32.02
Expected volatility		—		—		74.7	%		82.8	%
Risk-free interest rate		—		—		4.3	%		1.8	%

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Stock-Based Compensation

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Stock-based compensation:
Cost of revenue	$	310	$	270	$	866	$	736
Sales and marketing		606		1,461		1,930		3,354
Research, development and engineering		658		916		2,269		2,066
General and administrative		1,118		921		3,081		3,154
Stock-based compensation expense		2,692		3,568		8,146		9,310
Capitalized to software and patent costs		15		29		42		109
Total stock-based compensation	$	2,707	$	3,597	$	8,188	$	9,419

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,*
	*2023*		*2022*
Total unrecognized compensation costs	$	17,623	$	16,051

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 September 30, 2023, for all non-vested stock-based awards over weighted average periods through September 30, 2027, as follows:

		*RSAs*				*RSUs*				*PSUs*
Weighted average period (in years)			0.91				1.62				1.89

As of September 30, 2023, under the Company's stock incentive plan, an additional 1,444 shares remained available for future grants. The Company issues new shares upon exercises of stock options, grants of RSAs and vesting of RSU and PSU awards.

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 September 30, 2023:	*Options*			*Price*			*Fair Value*			*Value*
Outstanding at June 30, 2023		51		$	39.14		$	21.72
Granted		—		$	—		$	—
Exercised		—		$	—		$	—
Forfeited or expired		(50	)	$	(39.54	)	$	(21.72	)
Outstanding at September 30, 2023		1		$	22.15		$	—		$	12

				*Weighted*			*Weighted*
				*Average*			*Average*			*Aggregate*
	*Number of*			*Exercise*			*Grant Date*			*Intrinsic*
Nine Months Ended September 30, 2023:	*Options*			*Price*			*Fair Value*			*Value*
Outstanding at December 31, 2022		51		$	39.14		$	21.72
Granted		—		$	—		$	—
Exercised		—		$	—		$	—
Forfeited or expired		(50	)	$	(39.54	)	$	(21.72	)
Outstanding at September 30, 2023		1		$	22.15		$	—		$	12
Exercisable at September 30, 2023		1		$	22.15		$	—		$	12
Unvested at September 30, 2023		—		$	—		$	—		$	—

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

The aggregate intrinsic value is based on the closing price of $32.49 per share of Digimarc common stock on September 30, 2023, which would have been received by the optionees had all of the options with exercise prices less than $32.49 per share been exercised on that date.

Restricted Stock Awards Activity

The following table presents the unvested RSA activity:

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at June 30, 2023		141		$	31.04
Granted		—		$	—
Vested		(18	)	$	(32.16	)
Forfeited		(1	)	$	(35.39	)
Unvested balance at September 30, 2023		122		$	30.84

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		196		$	32.06
Granted		45		$	22.10
Vested		(113	)	$	(29.23	)
Forfeited		(6	)	$	(34.44	)
Unvested balance at September 30, 2023		122		$	30.84

The fair value of RSAs vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of RSAs vested	$	613	$	949	$	2,071	$	3,727

Restricted Stock Units Activity

The following table presents the unvested RSU activity:

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at June 30, 2023		524		$	23.56
Granted		9		$	33.84
Vested		(44	)	$	(24.34	)
Forfeited		(7	)	$	(22.12	)
Unvested balance at September 30, 2023		482		$	23.68

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		370		$	24.77
Granted		289		$	22.86
Vested		(117	)	$	(24.43	)
Forfeited		(60	)	$	(24.95	)
Unvested balance at September 30, 2023		482		$	23.68

The fair value of RSU awards vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of RSU awards vested	$	1,486	$	1,570	$	3,313	$	1,903

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Performance Stock Units Activity

The following table presents the unvested PSU activity:

			*Weighted*
			*Average*
	*Number of*		*Grant Date*
Three Months Ended September 30, 2023:	*Shares*		*Fair Value*
Unvested balance at June 30, 2023		192	$	29.01
Change in units based on performance expectations		—	$	—
Granted		—	$	—
Vested		—	$	—
Forfeited		—	$	—
Unvested balance at September 30, 2023		192	$	29.01

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		67		$	31.92
Change in units based on performance expectations		(6	)	$	(32.02	)
Granted		134		$	27.75
Vested		(2	)	$	(32.02	)
Forfeited		(1	)	$	(32.02	)
Unvested balance at September 30, 2023		192		$	29.01

The fair value of PSU awards vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of PSU awards vested	$	—	$	—	$	54	$	—

6. Shareholders' Equity

Registered Direct Offering

On April 5, 2022, the Company entered into purchase agreements with certain investors providing for the issuance and sale by the Company of 2,250 common shares in a registered direct offering. The common shares were offered at a price of $25.90 per share, and the gross cash proceeds to the Company were $58,275. The Company incurred $55 of legal costs related to the offering. The closing of the registered direct offering occurred on April 7, 2022.

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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 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 shares outstanding for the period. Diluted earnings per share is calculated by dividing earnings by the weighted-average number of shares, as adjusted for the potentially dilutive effect of stock options and unvested RSAs, RSUs, and PSUs. The dilutive effect of stock options and unvested RSAs, RSUs, and PSUs is determined using the treasury stock method.

The following table reconciles earnings (loss) per share:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Basic Earnings (Loss) per Share:
Net loss — basic	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)
Weighted average shares outstanding — basic		20,217			19,721			20,158			18,877
Basic loss per share	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)

Diluted Earnings (Loss) per Share:
Net loss — diluted	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)
Weighted average shares outstanding — diluted		20,217			19,721			20,158			18,877
Diluted loss per share	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)

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

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Anti-dilutive shares due to:
Exercise prices higher than the average market price		—		51		—		50
Net loss		237		—		110		—

8. Trade Accounts Receivable

Trade Accounts Receivable

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

	*September 30,*			*December 31,*
	*2023*			*2022*
Trade accounts receivable, current	$	7,156		$	5,541
Trade accounts receivable, long-term		12			37
Allowance for doubtful accounts		(114	)		(114	)
Trade accounts receivable, net	$	7,054		$	5,464
Unpaid deferred revenue included in trade accounts receivable	$	1,964		$	2,183

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

Allowance for Doubtful Accounts

The Company's accounts receivable are subject to concentrations of credit risk. The Company maintains an allowance for its doubtful accounts receivable to reflect any estimated credit losses. This allowance is evaluated each quarter on a customer by customer basis and considers historical write-off experience with each customer, the number of days that any delinquent invoices are past due, and an evaluation of the potential risk of loss associated with any delinquent accounts. The Company records the allowance in "general and administrative" expense in the Consolidated Statements of Operations, 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.

Major Customers

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

	*September 30,*	*December 31,*
	*2023*	*2022*
Company A	39%		55	%
Company B	22%		*
Company C	11%		*

* Less than 10%

9. Business Combination

On January 3, 2022, the Company completed its acquisition of EVRYTHNG, a London-based product cloud company. The aggregate preliminary purchase price for the acquisition was $36,634, which included the fair value of the 772 shares issued of common stock of the Company of $31,519 and the warrants issued to purchase 231 shares of common stock of the Company of $1,601. The fair value of the warrants was determined using the Black-Scholes option pricing model using the Company's stock price on the date of issuance of $40.84, the strike price on the warrants of $36.56 and expected volatility of 60%. All of the warrants expired in 2022 unexercised. The aggregate preliminary purchase price also included $3,986 of cash paid by the Company to pay closing costs on behalf of the EVRYTHNG sellers, less cash acquired of $474. A portion of the consideration was held back by the Company to secure any post-closing adjustments to the initial consideration and the indemnification obligations of the EVRYTHNG sellers.

In August 2022, the Company issued 22 additional shares of common stock of the Company at the fair value of $872, that were originally held back for post-closing adjustments.

In January 2023, the Company issued 10 additional shares of common stock of the Company at the fair value of $428, that were originally held back for indemnification obligations.

The Company entered into a Loan Agreement with EVRYTHNG (the "Loan Agreement") on December 10, 2021 pursuant to the terms of the acquisition. The Loan Agreement provided a loan facility of $2,000 to EVRYTHNG at an interest rate of 1% per annum. The original loan maturity date was December 9, 2022. The loan balance of $2,001 on January 3, 2022, was included in the purchase price allocation below, as the liability was assumed by the combined company.

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

The following table presents the final purchase price allocation:

	Purchase Price
	Allocation
	January 3, 2022
Trade accounts receivable, net	$	762
Other current assets		2,178
Property and equipment, net		99
Lease right of use assets and other long-term assets		484
Intangibles		35,720
Goodwill		7,970
Accounts payable and other accrued liabilities		(5,395	)
Deferred revenue		(1,678	)
Loan payable to related party		(2,001	)
Lease liability and other long-term liabilities		(205	)
Total purchase price	$	37,934

The Company allocated $35,720 of the purchase price to intangible assets, which consisted of $24,170 of developed technology and $11,550 of customer relationships. Goodwill recognized of $7,970 from the acquisition was primarily attributed to an assembled workforce and expected synergies. The Company incurred transaction costs related to the acquisition of $447 in 2022.

Developed Technology

Developed technology primarily consists of intellectual property of proprietary software products and platforms that are marketed for sale. The Company valued the developed technology by applying the cost method. The significant assumption and estimate used under the cost method was development costs. The Company is amortizing the developed technology intangible asset on a straight-line basis over an estimated useful life of five years.

Customer Relationships

The Company recorded the customer relationships intangible asset separately from goodwill based on a determination of the length, strength and contractual nature of the relationships that EVRYTHNG shared with its customers. The Company valued the single group of customer relationships using the multi-period excess earnings method, which is an income approach. The significant assumptions used in the income approach include estimates about future expected cash flows from customer contracts, the customer attrition rate and the discount rate. The Company is amortizing the customer relationships intangible asset on a straight-line basis over an estimated useful life of 10 years.

The following unaudited pro forma consolidated results of operations include the financial results of Digimarc and EVRYTHNG assuming the acquisition was completed on January 1, 2022, the beginning of the earliest period presented. Pro forma adjustments are primarily comprised of transaction expenses. The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved or of results that may occur in the future.

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Revenue	$	8,994		$	7,821		$	25,567		$	22,979
Net loss	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(46,903	)
Loss per share:
Basic	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.54	)
Diluted	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.54	)

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

10. 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 depreciated using the straight-line method over the shorter of the estimated useful life or the lease term.

	*September 30,*			*December 31,*
	*2023*			*2022*
Office furniture and fixtures	$	1,435		$	1,613
Software		5,483			5,747
Equipment		2,523			4,785
Leasehold improvements		1,858			1,861
Gross property and equipment		11,299			14,006
Less accumulated depreciation		(9,643	)		(11,616	)
Property and equipment, net	$	1,656		$	2,390

11. 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 nine months ended September 30, 2023 and 2022.

Balance at December 31, 2022	$	8,229
Currency translation adjustments		94
Balance at September 30, 2023	$	8,323

12. 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 nine months ended September 30, 2023 and 2022.

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)*		*2023*			*2022*
Capitalized patent costs		~17	$	9,291		$	10,646

Intangible assets acquired:
Purchased intellectual property		10		250			250
Developed technology		5		21,871			21,661
Customer relationships		10		10,451			10,351
Gross intangible assets				41,863			42,908
Accumulated amortization				(12,886	)		(9,738	)
Intangibles, net			$	28,977		$	33,170

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.

Amortization expense on intangible assets was as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Amortization expense	$	1,550	$	1,496	$	4,579	$	4,756

For intangible assets recorded at September 30, 2023, the estimated future aggregate amortization expense for the years ending December 31, 2023 through December 31, 2027 is as follows:

	*Amortization*
As of September 30, 2023	*Expense*
Remaining in 2023	$	1,492
2024	$	5,967
2025	$	5,946
2026	$	5,913
2027	$	1,504

13. Leases

The Company leases office space in Beaverton, Oregon. The term of the lease runs through March 2024, with remaining rent payments as of September 30, 2023, totaling $435 plus operating expenses, payable in monthly installments. The Company stopped using this office space as its corporate headquarters in March 2022 and is marketing the office space for sublease.

The Company entered into a sublease agreement and lease extension agreement for another facility 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, 2023, totaling $8,756 plus operating expenses, payable in monthly installments. The first 26 months of rent payments and operating expenses are abated to cover the remaining lease term on the Company's prior corporate headquarters.

The Company leased office space in London, England under a lease entered into by EVRYTHNG in July 2019. The term of the lease ended in July 2023, with no remaining rent payments as of September 30, 2023.

The Company accounts for leases in accordance with ASC 842, "Leases."

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

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,*
	*2023*			*2022*
Lease right of use assets	$	4,108		$	4,720
Lease liabilities, current	$	468		$	939
Lease liabilities, long-term	$	6,170		$	5,977

Weighted-average remaining life (in years)		6.6			6.7
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 assets may not be recoverable. The Company recorded an "impairment of lease right of use assets and leasehold improvements" of $250 and $574 in the Consolidated Statements of Operations in the second quarter of 2023 and the first quarter of 2022, respectively. The impairment was initially triggered when the Company vacated its prior corporate headquarters. The impairment charges were determined by comparing the carrying value of the assets to the net present value of estimated cash flows from the future sublease of the office space over the remaining lease term.

Operating lease expense is included in "operating expenses" in the Consolidated Statements of Operations 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 tables:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Operating lease expense	$	347	$	498	$	1,189	$	1,422
Cash paid for operating leases	$	260	$	395	$	909	$	1,185

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 Sheet as of September 30, 2023:

	*Cash*
	*Payment*
As of September 30, 2023:	*Obligations*
Remaining in 2023	$	219
2024		1,186
2025		1,317
2026		1,356
2027		1,397
Thereafter		3,751
Total lease payments		9,226
Imputed interest		(2,588	)
Total minimum lease payments	$	6,638

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DIGIMARC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands, except per share data)

(UNAUDITED)

14. Other Income

The following table provides information about other income, net:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*		*2022*
Interest income	$	423		$	249		$	1,283	$	340
Refundable tax credit		120			376			526		878
Foreign currency gains (losses)		(65	)		(6	)		58		(19	)
Other income		—			4			3		15
Total other income, net	$	478		$	623		$	1,870	$	1,214

15. 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, 2023 and 2022 was 0% and 0%, respectively.

The valuation allowance against net deferred tax assets as of September 30, 2023, was $92,888, an increase of $9,888 from $83,000 as of December 31, 2022. 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.

An excess tax benefit of $436 and an excess tax deficiency of $803 were recognized in the provision for income taxes for the three and nine months ended September 30, 2023, respectively, which were offset by $436 and $803 of valuation allowance, respectively.

Excess tax deficiencies of $2,355 and $3,170 were recognized in the provision for income taxes for the three and nine months ended September 30, 2022, respectively, which were offset by $2,355 and $3,170 of valuation allowance, respectively.

16. Commitments and Contingencies

Certain of the Company's contracts include an indemnification provision for claims from third parties relating to infringement of intellectual property. Such indemnification provisions are accounted for in accordance with ASC 450, "Contingencies." To date, there have been no claims made under such indemnification provisions.

The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business. At this time, the Company does not believe that the resolution of any such matters will have a material adverse effect on its consolidated financial statements.

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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 Annual Report on Form 10-K for the year ended December 31, 2022 filed on March 2, 2023 (our "2022 Annual Report"), and other reports and filings we have made with the U.S. Securities and Exchange Commission ("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 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 Corporation is a global leader in product digitization and digital media identification, delivering business value across industries through unique identities and cloud-based solutions. Our 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 product suite is built on top of the Digimarc Illuminate platform to address specific business needs and power a trusted and scalable ecosystem in areas like automation, consumer trust and authenticity, and sustainability. All of our 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, our 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 and digital assets are genuine and in the right place. Our technology protects digital images, audio, 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. Our technology activates products and media through on-package QR codes or digital watermarks, 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. Our 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. Our technology leverages covert digital watermarks and on-package QR codes to provide an easier, frictionless shopping experience and to comply with upcoming industry standards. In addition, consumer engagement capabilities deliver a direct digital communication channel with consumers.

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Digimarc has maintained a relationship with a consortium of central banks (the "Central Banks") for over 24 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.

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. We seek patent protection for our inventions to differentiate our products and technologies, mitigate infringement risks, and develop opportunities for licensing. Our intellectual property contains many innovations in digital watermarking, content and object recognition, product authentication, and related fields. Our broad patent portfolio covers a wide range of methods, applications, system architectures and processes. As a result, we believe we have one of the world's most extensive patent portfolios in digital watermarking and related fields, with approximately 870 U.S. and foreign patents granted and applications pending as of September 30, 2023. The patents in our portfolio each have a life of approximately 20 years from the patent's effective filing date.

On January 3, 2022, we completed the acquisition of EVRYTHNG. The EVRYTHNG Product Cloud allows the combined company to offer a complete software as a service product digitization platform to existing customers and prospective customers. The aggregate consideration for the acquisition was 804 thousand shares of common stock of the Company and warrants to purchase 231 thousand shares of common stock of the Company. The warrants expired unexercised. We also paid $4.0 million of closing costs on behalf of the EVRYTHNG sellers. The financial results of EVRYTHNG are consolidated with Digimarc's financial results for the post-acquisition period.

Critical Accounting Policies and Estimates

Detailed information about our critical accounting policies and estimates is set forth in Part III, Item 15 of our 2022 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.

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Results of Operations

The following table presents Consolidated Statements of Operations data for the periods indicated as a percentage of total revenue. The Consolidated Statements of Operations for the nine months ended September 30, 2022 reflect the operating results of EVRYTHNG from January 3, 2022, the date the acquisition closed, through September 30, 2022.

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 month periods ended September 30, 2023, and all changes discussed with respect to such periods reflect changes compared to the three and nine month periods ended September 30, 2022.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Percentages are percent of total revenue
Revenue:
Subscription		53	%		52	%		52	%		48	%
Service		47			48			48			52
Total revenue		100			100			100			100
Cost of revenue:
Subscription ⁽¹⁾		8			13			9			13
Service ⁽¹⁾		22			20			22			23
Amortization expense on acquired intangible assets		13			13			13			15
Total cost of revenue		42			47			44			50
Gross profit		58			53			56			50
Operating expenses:
Sales and marketing		60			98			66			103
Research, development and engineering		70			97			79			86
General and administrative		49			53			52			65
Amortization expense on acquired intangible assets		3			4			3			4
Impairment of lease right of use assets and leasehold improvements		—			—			1			2
Total operating expenses		182			252			202			261
Operating loss		(124	)		(199	)		(145	)		(211	)
Other income, net		5			8			7			5
Loss before income taxes		(119	)		(191	)		(138	)		(206	)
Provision for income taxes		(1	)		(—	)		(—	)		(—	)
Net loss		(119	)%		(191	)%		(138	)%		(206	)%

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

Summary

Total revenue for the three month period ended September 30, 2023, increased $1.2 million, or 15%, to $9.0 million, compared to $7.8 million for the corresponding three month period ended September 30, 2022. The increase in revenue primarily reflects $0.7 million of higher subscription revenue from new and existing commercial contracts and $0.6 million of higher service revenue due to a larger annual budget from the Central Banks for project work in 2023 than in 2022.

Total revenue for the nine month period ended September 30, 2023, increased $2.6 million, or 11%, to $25.6 million, compared to $23.0 million for the corresponding nine month period ended September 30, 2022. The increase in revenue primarily reflects $3.0 million of higher subscription revenue from new and existing commercial contracts and $1.3 million of higher service revenue due to a larger annual budget from the Central Banks for project work in 2023 than in 2022, partially offset by $0.9 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product in 2022 and $0.8 million of lower service revenue from HolyGrail recycling projects.

Total operating expenses for the three month period ended September 30, 2023, decreased $3.3 million, or 17%, to $16.4 million, compared to $19.7 million for the corresponding three month period ended September 30, 2022. The decrease in operating expenses primarily reflects $1.4 million of lower severance costs incurred for organizational changes, $1.1 million of lower compensation costs due to lower headcount, partially offset by annual compensation adjustments, and $0.6 million of lower contractor and consulting expenses.

Total operating expenses for the nine month period ended September 30, 2023, decreased $8.5 million, or 14%, to $51.5 million, compared to $60.0 million for the corresponding nine month period ended September 30, 2022. The decrease in operating expenses primarily reflects $4.4 million of lower compensation costs due to lower headcount, partially offset by annual compensation adjustments, and lower expenses for contractors and consultants of $1.6 million, travel and training of $0.9 million, legal of $0.6 million, recruiting of $0.6 million, and facilities of $0.6 million, partially offset by $0.7 million of higher severance costs incurred for organizational changes.

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Revenue

	Three Months Ended September 30,						Dollar		Percent			Nine Months Ended September 30,						Dollar		Percent
	2023			2022			Increase/(Decrease)		Increase/(Decrease)			2023			2022			Increase/(Decrease)		Increase/(Decrease)
Revenue:
Subscription	$	4,811		$	4,086		$	725		18	%	$	13,374		$	11,121		$	2,253		20	%
Service		4,183			3,735			448		12	%		12,193			11,858			335		3	%
Total	$	8,994		$	7,821		$	1,173		15	%	$	25,567		$	22,979		$	2,588		11	%
Revenue (as % of total revenue):
Subscription		53	%		52	%							52	%		48	%
Service		47	%		48	%							48	%		52	%
Total		100	%		100	%							100	%		100	%

Subscription

Subscription revenue consists primarily of revenue earned from subscription fees for access to our software as a service 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 increase in subscription revenue for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, primarily reflects $0.7 million of higher subscription revenue from new and existing commercial contracts.

The $2.3 million increase in subscription revenue for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, primarily reflects $3.0 million of higher subscription revenue from new and existing commercial contracts, partially offset by $0.9 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product in 2022.

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 $0.4 million increase in service revenue for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, primarily reflects $0.6 million of higher service revenue from the Central Banks.

The $0.3 million increase in service revenue for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, primarily reflects $1.3 million of higher service revenue from the Central Banks, partially offset by $0.8 million of lower service revenue from HolyGrail recycling projects.

Revenue by geography

	Three Months Ended September 30,						Dollar		Percent			Nine Months Ended September 30,						Dollar		Percent
	2023			2022			Increase/(Decrease)		Increase/(Decrease)			2023			2022			Increase/(Decrease)		Increase/(Decrease)
Revenue by geography:
Domestic	$	2,921		$	2,889		$	32		1	%	$	8,541		$	7,259		$	1,282		18	%
International		6,073			4,932			1,141		23	%		17,026			15,720			1,306		8	%
Total	$	8,994		$	7,821		$	1,173		15	%	$	25,567		$	22,979		$	2,588		11	%
Revenue (as % of total revenue):
Domestic		32	%		37	%							33	%		32	%
International		68	%		63	%							67	%		68	%
Total		100	%		100	%							100	%		100	%

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Domestic

The $ 0.0 million increase in domestic revenue for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022 was insignificant.

The $ 1.3 million increase in domestic revenue for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, primarily reflects $1.9 million of higher subscription revenue from new and existing commercial contracts, partially offset by $0.6 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product in 2022.

International

The $ 1.1 million increase in international revenue for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, primarily reflects $0.7 million of higher subscription revenue from new and existing commercial contracts and $0.6 million of higher service revenue from the Central Banks.

The $ 1.3 million increase in international revenue for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, primarily reflects $1.3 million of higher service revenue from the Central Banks and $1.1 million of higher subscription revenue from new and existing commercial contracts, partially offset by $0.8 million of lower service revenue from HolyGrail recycling projects and $0.3 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product in 2022.

Revenue by market

	Three Months Ended September 30,				Dollar			Percent			Nine Months Ended September 30,				Dollar			Percent
	2023		2022		Increase/(Decrease)			Increase/(Decrease)			2023		2022		Increase/(Decrease)			Increase/(Decrease)
Commercial:
Subscription	$	4,511	$	3,786	$	725			19	%	$	12,474	$	10,033	$	2,441			24	%
Service		213		389		(176	)		(45	)%		849		1,851		(1,002	)		(54	)%
Total Commercial	$	4,724	$	4,175	$	549			13	%	$	13,323	$	11,884	$	1,439			12	%

Government:
Subscription	$	300	$	300	$	—			—	%	$	900	$	1,088	$	(188	)		(17	)%
Service		3,970		3,346		624			19	%		11,344		10,007		1,337			13	%
Total Government	$	4,270	$	3,646	$	624			17	%	$	12,244	$	11,095	$	1,149			10	%
Total	$	8,994	$	7,821	$	1,173			15	%	$	25,567	$	22,979	$	2,588			11	%

Commercial

The $0.5 million increase in commercial revenue for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, primarily reflects $0.7 million of higher subscription revenue from new and existing commercial contracts, partially offset by $0.2 million of lower commercial service revenue.

The $1.4 million increase in commercial revenue for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, primarily reflects $3.0 million of higher subscription revenue from new and existing commercial contracts, partially offset by $0.9 million of lower subscription revenue as a result of sunsetting our Piracy Intelligence product in 2022 and $0.8 million of lower service revenue from HolyGrail recycling projects.

Government

The $0.6 million increase in government revenue for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, primarily reflects $0.6 million of higher service revenue from the Central Banks.

The $1.1 million increase in government revenue for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, primarily reflects $1.3 million of higher service revenue from the Central Banks, partially offset by $0.2 million of lower government subscription revenue.

Annual Recurring Revenue ("ARR")

As of

Dollar

Percent

September 30,

Increase

2023

2022

(Decrease)

ARR

19,559

12,682

6,877

ARR increased $6.9 million, or 54%, primarily driven by new commercial subscription contracts entered into and increased subscription fees on existing commercial contracts.

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 active 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.

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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 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
	2023			2022			Increase/(Decrease)			Increase/(Decrease)			2023			2022			Increase/(Decrease)			Increase/(Decrease)
Gross Profit:
Subscription ⁽¹⁾	$	4,113		$	3,080		$	1,033			34	%	$	11,110		$	8,187		$	2,923			36	%
Service ⁽¹⁾		2,245			2,133			112			5	%		6,572			6,681			(109	)		(2	)%
Amortization expense on acquired intangible assets		(1,135	)		(1,048	)		(87	)		(8	)%		(3,346	)		(3,362	)		16			—	%
Total	$	5,223		$	4,165		$	1,058			25	%	$	14,336		$	11,506		$	2,830			25	%
Gross Profit Margin:
Subscription ⁽¹⁾		85	%		75	%								83	%		74	%
Service ⁽¹⁾		54	%		57	%								54	%		56	%
Total		58	%		53	%								56	%		50	%

⁽¹⁾	Gross Profit and Gross Profit Margin for Subscription and Service excludes Amortization expense on acquired intangible assets.

The $1.1 million increase in total gross profit for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily due to $1.0 million of higher subscription gross profit contribution reflecting higher subscription revenue and a favorable mix of subscription revenue.

The $2.8 million increase in total gross profit for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily due to $2.9 million of higher subscription gross profit contribution reflecting higher subscription revenue and a favorable mix of subscription revenue.

The increase in subscription gross profit margin, excluding amortization expense on acquired intangible assets, for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily due to higher subscription revenue combined with a favorable mix of subscription revenue, and lower platform costs.

The increase in subscription gross profit margin, excluding amortization expense on acquired intangible assets, for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily due to higher subscription revenue combined with a favorable mix of subscription revenue, and lower platform costs.

The decrease in service gross profit margin, excluding amortization expense on acquired intangible assets, for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily due to a more favorable mix of service revenue in 2022.

The decrease in service gross profit margin, excluding amortization expense on acquired intangible assets, for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily due to a more favorable mix of service revenue in 2022.

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Operating expenses

Sales and marketing

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar			Percent
	2023			2022			Increase/(Decrease)			Increase/(Decrease)			2023			2022			Increase/(Decrease)			Increase/(Decrease)
Sales and marketing	$	5,366		$	7,684		$	(2,318	)		(30	)%	$	16,770		$	23,702		$	(6,932	)		(29	)%
Sales and marketing (as % of total revenue)		60	%		98	%								66	%		103	%

Sales and marketing expenses consist primarily of:

•

compensation, benefits, incentive compensation in the form of cash and stock-based compensation and related costs of our sales, marketing, product, operations and customer support personnel;

•

travel and market research costs, and costs associated with marketing programs, such as trade shows, public relations and new product launches;

•

professional services, consulting and outside contractor costs for sales and marketing and product initiatives; and

•

the allocation of facilities and information technology costs.

The $2.3 million decrease in sales and marketing expenses for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily due to:

•

decreased severance costs of $1.0 million incurred for organizational changes;

•

decreased compensation costs of $0.7 million reflecting lower headcount, partially offset by annual compensation adjustments;

•

decreased contractor and consulting expenses of $0.5 million; and

•

decreased allocation of facilities and information technology costs of $0.2 million.

The $6.9 million decrease in sales and marketing expenses for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily due to:

•

decreased compensation costs of $3.8 million reflecting lower headcount, partially offset by annual compensation adjustments;

•

decreased allocation of facilities and information technology costs of $1.3 million;

•

decreased contractor and consulting expenses of $1.1 million;

•

decreased travel and training expenses of $0.8 million; and

•

decreased severance costs of $0.2 million incurred for organizational changes.

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Research, development and engineering

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar		Percent
	2023			2022			Increase/(Decrease)			Increase/(Decrease)			2023			2022			Increase/(Decrease)		Increase/(Decrease)
Research, development and engineering	$	6,308		$	7,575		$	(1,267	)		(17	)%	$	20,295		$	19,731		$	564		3	%
Research, development and engineering (as % of total revenue)		70	%		97	%								79	%		86	%

Research, development and engineering expenses consist primarily of:

•

compensation, benefits, incentive compensation in the form of cash and stock-based compensation and related costs of our software developers and quality assurance personnel;

•

payments to outside contractors for software development services;

•

the purchase of materials and services for product development; and

•

the allocation of facilities and information technology costs.

The $1.3 million decrease in research, development and engineering expenses for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily due to:

•

decreased compensation costs of $0.9 million reflecting lower headcount, partially offset by annual compensation adjustments;

•

decreased severance costs of $0.2 million incurred for organizational changes; and

•

decreased allocation of facilities and information technology costs of $0.2 million.

The $0.6 million increase in research, development and engineering expenses for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily due to:

•

increased severance costs of $0.9 million incurred for organizational changes;

•

increased software, hardware and maintenance expenses of $0.5 million;

•

increased contractor and consulting expenses of $0.2 million; and

•

increased compensation costs of $0.1 million reflecting annual compensation adjustments, partially offset by lower headcount; partially offset by

•

decreased allocation of facilities and information technology costs of $1.1 million; and

•

decreased recruiting expenses of $0.3 million.

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General and administrative

	Three Months Ended September 30,						Dollar		Percent			Nine Months Ended September 30,						Dollar			Percent
	2023			2022			Increase/(Decrease)		Increase/(Decrease)			2023			2022			Increase/(Decrease)			Increase/(Decrease)
General and administrative	$	4,433		$	4,132		$	301		7	%	$	13,412		$	15,027		$	(1,615	)		(11	)%
General and administrative (as % of total revenue)		49	%		53	%							52	%		65	%

We incur general and administrative costs in the functional areas of finance, legal, human resources, intellectual property, executive and board of directors. Costs for facilities and information technology are also managed as part of the general and administrative processes and are allocated to this area as well as sales and marketing and research, development and engineering.

General and administrative expenses consist primarily of:

•

compensation, benefits and incentive compensation in the form of cash and stock-based compensation and related costs of our general and administrative personnel;

•

third party and professional fees associated with legal, accounting and human resources functions;

•

costs associated with being a public company;

•

third party costs, including filing and governmental regulatory fees and outside legal fees and translation costs, related to the filing and maintenance of our intellectual property; and

•

infrastructure and centralized costs for facilities and information technology.

The $0.3 million increase in general and administrative expenses for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily due to:

•

increased compensation costs of $0.5 million reflecting annual compensation adjustments, partially offset by lower headcount; and

•

lower allocation of facilities and information technology costs to other departments of $0.4 million; partially offset by

•

decreased contractor and consulting expenses of $0.2 million;

•

decreased facilities expenses of $0.2 million; and

•

decreased severance costs of $0.1 million incurred for organizational changes.

The $1.6 million decrease in general and administrative expenses for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily due to:

•

decreased compensation costs of $0.8 million reflecting lower headcount, partially offset by annual compensation adjustments;

•

decreased contractor and consulting expenses of $0.7 million;

•

decreased legal expenses of $0.6 million;

•

decreased facilities expenses of $0.6 million;

•

decreased software, hardware and maintenance expenses of $0.5 million;

•

decreased operating taxes of $0.3 million largely reflecting the stamp tax due for the EVRYTHNG acquisition in 2022; and

•

decreased recruiting expenses of $0.2 million; partially offset by

•

lower allocation of facilities and information technology costs to other departments of $2.4 million.

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Amortization expense on acquired intangible assets

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar			Percent
	2023			2022			Increase/(Decrease)			Increase/(Decrease)			2023			2022			Increase/(Decrease)			Increase/(Decrease)
Amortization expense on acquired intangible assets	$	272		$	301		$	(29	)		(10	)%	$	800		$	964		$	(164	)		(17	)%
Amortization expense on acquired intangible assets (as % of total revenue)		3	%		4	%								3	%		4	%

Amortization expense on acquired intangible assets relates to amortization expense recognized on the customer relationships intangible asset acquired in the EVRYTHNG acquisition.

The decreases in amortization expense on acquired intangible assets primarily reflect the impact of changes in foreign currency exchange rates.

Impairment of lease right of use assets and leasehold improvements

	Three Months Ended September 30,						Dollar		Percent			Nine Months Ended September 30,						Dollar			Percent
	2023			2022			Increase/(Decrease)		Increase/(Decrease)			2023			2022			Increase/(Decrease)			Increase/(Decrease)
Impairment of lease right of use assets and leasehold improvements	$	—		$	—		$	—		—	%	$	250		$	574		$	(324	)		(56	)%
Impairment of lease right of use assets and leasehold improvements (as % of total revenue)		—	%		—	%							1	%		2	%

The changes in impairment of lease right of use assets and leasehold improvements relates to the differences in the amount of impairment charges recorded for each respective period on our former corporate headquarters in Beaverton, Oregon.

Stock-based compensation

	Three Months Ended September 30,				Dollar			Percent			Nine Months Ended September 30,				Dollar			Percent
	2023		2022		Increase/(Decrease)			Increase/(Decrease)			2023		2022		Increase/(Decrease)			Increase/(Decrease)
Cost of revenue	$	310	$	270	$	40			15	%	$	866	$	736	$	130			18	%
Sales and marketing		606		1,461		(855	)		(59	)%		1,930		3,354		(1,424	)		(42	)%
Research, development and engineering		658		916		(258	)		(28	)%		2,269		2,066		203			10	%
General and administrative		1,118		921		197			21	%		3,081		3,154		(73	)		(2	)%
Total	$	2,692	$	3,568	$	(876	)		(25	)%	$	8,146	$	9,310	$	(1,164	)		(13	)%

The decrease in stock-based compensation expense for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily the result of a lower amount of employee equity grants made in 2023 than in 2022 and lower stock-based compensation costs incurred for organizational changes.

The decrease in stock-based compensation expense for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily the result of a lower amount of employee equity grants made in 2023 than in 2022, partially offset by higher stock-based compensation costs incurred for organizational changes.

We anticipate incurring an additional $17.6 million in stock-based compensation expense through September 30, 2027, for stock awards outstanding as of September 30, 2023.

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Other income, net

	Three Months Ended September 30,						Dollar			Percent			Nine Months Ended September 30,						Dollar		Percent
	2023			2022			Increase/(Decrease)			Increase/(Decrease)			2023			2022			Increase/(Decrease)		Increase/(Decrease)
Other income, net	$	478		$	623		$	(145	)		(23	)%	$	1,870		$	1,214		$	656		54	%
Other income, net (as % of total revenue)		5	%		8	%								7	%		5	%

The decrease in other income, net for the three month period ended September 30, 2023, compared to the corresponding three month period ended September 30, 2022, was primarily due to lower refundable tax credits, partially offset by higher interest income reflecting higher interest rates on our marketable securities.

The increase in other income, net for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, was primarily due to higher interest income reflecting higher interest rates on our marketable securities, partially offset by lower refundable tax credits.

Income Taxes

The provision for income taxes reflects current taxes and deferred taxes. The effective tax rate for each of the nine month periods ended September 30, 2023 and 2022 was 0% and 0%, respectively. Our effective tax rate is significantly lower than our statutory tax rate because we have a valuation allowance recorded against our deferred tax assets.

The valuation allowance against deferred tax assets as of September 30, 2023, was $92.9 million, an increase of $9.9 million from $83.0 million as of December 31, 2022.

We continually assess the applicability of a valuation allowance against our deferred tax assets. Based upon the positive and negative evidence available as of September 30, 2023, and largely due to the cumulative loss incurred by us over the last several years, which is considered a significant piece of negative evidence when assessing the realizability of deferred tax assets, a valuation allowance is recorded against our deferred tax assets. We will not record tax benefits on any future losses until it is determined that those tax benefits will be realized. Future reversals of the valuation allowance would result in a tax benefit in the period recognized.

Non-GAAP Financial Measures

The following discussion and analysis includes both financial measures in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that exclude amounts that are not normally excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, GAAP financial measures. Non-GAAP financial measures may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Our management uses and relies on Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP loss per share (diluted), which are all non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods.

Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.

We define Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP loss per share (diluted) excluding the adjustments in the table below. These non-GAAP financial measures are an important measure of our operating performance because they allow management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing non-cash and non-recurring activities that can affect comparability.

We have included a reconciliation of our financial measures calculated in accordance with GAAP to the most comparable non-GAAP financial measures. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between us and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules.

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The following table presents a reconciliation of Non-GAAP gross profit, Non-GAAP gross profit margin, Non-GAAP operating expenses, Non-GAAP net loss, and Non-GAAP loss per share (diluted) for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
GAAP gross profit	$	5,223		$	4,165		$	14,336		$	11,506
Amortization of acquired intangible assets		1,135			1,048			3,346			3,362
Amortization and write-off of other intangible assets		143			145			433			430
Stock-based compensation		310			270			866			736
Non-GAAP gross profit	$	6,811		$	5,628		$	18,981		$	16,034
Non-GAAP gross profit margin		76	%		72	%		74	%		70	%

GAAP operating expenses	$	16,379		$	19,692		$	51,527		$	59,998
Depreciation and write-off of property and equipment		(223	)		(316	)		(911	)		(1,036	)
Amortization of acquired intangible assets		(272	)		(301	)		(800	)		(964	)
Amortization and write-off of other intangible assets		(228	)		(4	)		(276	)		(63	)
Amortization of lease right of use assets under operating leases		(94	)		(248	)		(426	)		(768	)
Stock-based compensation		(2,382	)		(3,298	)		(7,280	)		(8,574	)
Impairment of lease right of use assets and leasehold improvements		—			—			(250	)		(574	)
Acquisition-related expenses		—			—			—			(447	)
Non-GAAP operating expenses	$	13,180		$	15,525		$	41,584		$	47,572

GAAP net loss	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)
Total adjustments to gross profit		1,588			1,463			4,645			4,528
Total adjustments to operating expenses		3,199			4,167			9,943			12,426
Non-GAAP net loss	$	(5,936	)	$	(9,300	)	$	(20,798	)	$	(30,396	)

GAAP loss per share (diluted)	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)
Non-GAAP net loss	$	(5,936	)	$	(9,300	)	$	(20,798	)	$	(30,396	)
Non-GAAP loss per share (diluted)	$	(0.29	)	$	(0.47	)	$	(1.03	)	$	(1.61	)

Non-GAAP gross profit for the three months ended September 30, 2023, increased by $1.2 million compared to the three months ended September 30, 2022. The increase was primarily due to higher subscription and service revenue.

Non-GAAP gross profit for the nine months ended September 30, 2023, increased by $2.9 million compared to the nine months ended September 30, 2022. The increase was primarily due to higher subscription and service revenue.

Non-GAAP gross profit margin for the three months ended September 30, 2023, increased to 76% compared to 72% for the three months ended September 30, 2022. The increase was primarily due to higher subscription revenue combined with a favorable mix of subscription revenue and lower platform costs, partially offset by a more favorable mix of service revenue in 2022.

Non-GAAP gross profit margin for the nine months ended September 30, 2023, increased to 74% compared to 70% for the nine months ended September 30, 2022. The increase was primarily due to higher subscription revenue combined with a favorable mix of subscription revenue and lower platform costs, partially offset by a more favorable mix of service revenue in 2022.

Non-GAAP operating expenses for the three months ended September 30, 2023, decreased by $2.3 million compared to the three months ended September 30, 2022. The decrease was primarily due to $0.9 million of lower cash compensation costs due to lower headcount, partially offset by annual compensation adjustments, $0.8 million of lower cash severance costs incurred for organizational changes, and $0.6 million of lower contractor and consulting expenses.

Non-GAAP operating expenses for the nine months ended September 30, 2023, decreased by $6.0 million compared to the nine months ended September 30, 2022. The decrease was primarily due to $3.3 million of lower cash compensation costs due to lower headcount, partially offset by annual compensation adjustments, and lower expenses for contractors and consultants of $1.6 million, travel and training of $0.9 million, legal of $0.6 million, and recruiting of $0.6 million, partially offset by $0.7 million of higher cash severance costs incurred for organizational changes.

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Liquidity and Capital Resources

	September 30,		December 31,
	2023		2022
Working capital	$	31,429	$	54,007
Current ratio ⁽¹⁾		3.3:1		6.3:1
Cash, cash equivalents and short-term marketable securities	$	33,331	$	52,542
Long-term marketable securities		—		—
Total cash, cash equivalents and marketable securities	$	33,331	$	52,542

⁽¹⁾	The current ratio is calculated by dividing total current assets by total current liabilities.

The $19.2 million decrease in cash, cash equivalents and marketable securities at September 30, 2023, from December 31, 2022, resulted primarily from:

•

cash used in operations;

•

purchases of common stock related to tax withholding in connection with the vesting of restricted stock, restricted stock units, and performance stock units; and

•

purchases of property and equipment and capitalized patent costs.

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, and trade accounts receivable. We place our cash and cash equivalents with major banks and our marketable securities with major financial institutions. At times deposits may exceed insured limits. Marketable securities primarily include U.S. Treasuries, money market securities, commercial paper, and federal agency notes. Our investment policy requires our portfolio to be invested to ensure that the greater of $3,000 or 7% of the invested funds will be available within 30 days' notice.

Other than cash used for operating needs, which may include short-term marketable securities, our investment policy limits our credit exposure to any one financial institution or type of financial instrument by limiting the maximum of 5% of our cash, cash equivalents, and marketable securities or $1,000, whichever is greater, to be invested in any one issuer except for the U.S. government, U.S. federal agencies and U.S. backed securities, which have no limits, at the time of purchase. Our investment policy also limits our credit exposure by limiting to a maximum of 40% of our cash, cash equivalents, and marketable securities, or $15,000, whichever is greater, to be invested in any one industry category (e.g., financial, energy, etc.) at the time of purchase. As a result, we believe our credit risk associated with cash, cash equivalents, and marketable securities to be minimal.

Operating Cash Flow

The components of cash flows used in operating activities were:

	Nine Months Ended September 30,						Dollar			Percent
	2023			2022			Increase/(Decrease)			Increase/(Decrease)
Net loss	$	(35,386	)	$	(47,350	)	$	(11,964	)		(25	)%
Non-cash items		14,588			16,507			1,919			12	%
Changes in operating assets and liabilities		4,119			(6,045	)		(10,164	)		(168	)%
Net cash used in operating activities	$	(16,679	)	$	(36,888	)	$	(20,209	)		(55	)%

Cash flows used in operating activities for the nine month period ended September 30, 2023, decreased by $20.2 million, compared to the corresponding nine month period ended September 30, 2022, primarily as a result of a $12.0 million lower net loss and $10.2 million from favorable changes in operating assets and liabilities, partially offset by $1.9 million of lower non-cash items included in net loss. The changes in operating assets and liabilities are largely due to the timing and amount of customer receipts. The change in non-cash items primarily reflects lower stock-based compensation expense, amortization expense, and impairment on lease right of use assets.

Cash flows provided by investing activities for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, increased by $10.6 million. The increase primarily reflects higher net proceeds from maturities of marketable securities, $3.5 million of net cash paid for the acquisition of EVRYTHNG in January 2022, and lower purchases of property and equipment.

Cash flows from financing activities for the nine month period ended September 30, 2023, compared to the corresponding nine month period ended September 30, 2022, decreased by $58.7 million. The decrease primarily reflects the impact of the $58.2 million of net proceeds we raised from our registered direct stock offering in April 2022.

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Future Cash Expectations

We believe that our current cash, cash equivalents, and marketable securities balances will satisfy our projected working capital and capital expenditure requirements for at least the next 12 months.

Registered Direct Offering

On April 5, 2022, we entered into purchase agreements with certain investors providing for the issuance and sale by us of 2.25 million common shares in a registered direct stock offering. The common shares were offered at a price of $25.90 per share, and the gross cash proceeds to us were $58.3 million. We incurred $0.1 million of legal costs related to the offering. The closing of the registered direct offering occurred on April 7, 2022.

Shelf Registration

On June 23, 2023, we filed a new shelf registration statement on Form S-3 that included $34.6 million of unsold securities from our prior shelf registration statement filed on June 5, 2020. The prior shelf registration expired on July 24, 2023. The new shelf registration statement became effective on July 19, 2023, and expires on July 19, 2026. Under the new shelf registration statement, we may sell securities in one or more offerings up to $100.0 million. As of September 30, 2023, $100.0 million remained available under the new shelf registration statement.

Equity Distribution Agreement

On May 16, 2019, we entered into an Equity Distribution Agreement, whereby we may sell from time to time through Wells Fargo Securities, LLC, as our sales agent, our common stock having an aggregate offering price of up to $30,000. Wells Fargo Securities, LLC will receive from us a commission equal to 2.50% of the gross sales price per share of common stock for shares having an aggregate offering price of up to $10.0 million, and a commission of 2.25% of the gross sales price per share of common stock thereafter, for shares sold under the Equity Distribution Agreement. We did not sell any shares under this Equity Distribution Agreement during the nine months ended September 30, 2023 and 2022. As of September 30, 2023, $1.9 million remains available for future issuance under the Equity Distribution Agreement.

We may sell shares under the shelf registration and/or use similar or other financing means to raise working capital in the future, if necessary, to support continued investment in our growth initiatives. We may also raise capital in the future to fund acquisitions and/or investments in complementary businesses, technologies or product lines. If it becomes necessary to obtain additional financing, we may not be able to do so, or if these funds are available, they may not be available on satisfactory terms.

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933. Words such as "may," "might," "plan," "should," "could," "expect," "anticipate," "intend," "believe," "project," "forecast," "estimate," "continue," and variations of such terms or similar expressions are intended to identify such forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements, and investors are cautioned not to place undue reliance on such statements. We believe that the following factors, among others (including those described in Item 1A. "Risk Factors" of our 2022 Annual Report), could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us. Forward-looking statements include but are not limited to statements relating to:

•

our expectations regarding the acquisition of EVRYTHNG and its impact on our business;

•

the concentration of most of our revenue among few customers;

•

and the trends and sources of future revenue;

•

anticipated successful advocacy of our technology by our partners;

•

our belief regarding the global deployment of our products;

•

our beliefs regarding potential outcomes of participating in the HolyGrail initiative and the utility of our products in the recycling industry;

•

our ESG projects and ESG Impact Report;

•

our future level of investment in our business, including investment in research, development and engineering of products and technology, development of our intellectual property, sales growth initiatives and development of new market opportunities;

•

anticipated expenses, costs, margins, provision for income taxes and investment activities in the foreseeable future;

•

our assumptions and expectations related to stock awards;

•

our belief that we have one of the world's most extensive patent portfolios in digital watermarking and related fields;

•

anticipated effect of our adoption of accounting pronouncements;

•

our beliefs regarding our critical accounting policies;

•

our expectations regarding the impact of accounting pronouncements issued but not yet adopted;

•

anticipated revenue to be generated from current contracts, renewals, and as a result of new programs;

•

our estimates, judgments and assumptions related to impairment testing;

•

variability of contracted arrangements in response to changes in circumstances underlying the original contractual arrangements;

•

business opportunities that could require that we seek additional financing and our ability to do so;

•

the size and growth of our markets and our assumptions and beliefs related to those markets;

•

the existence of international growth opportunities and our future investment in such opportunities;

•

our expected short-term and long-term liquidity positions;

•

our capital expenditure and working capital requirements and our ability to fund our capital expenditure and working capital needs through cash flow from operations or financing;

•

our expectations regarding our ability to meet future financial obligations as they become due within the coming fiscal year;

•

the effect of computerized trading on our stock price;

•

capital market conditions, our expectations regarding credit risk exposure, interest rate volatility and other limitations on the availability of capital, which could have an impact on our cost of capital and our ability to access the capital markets;

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•

our use of cash, cash equivalents and marketable securities in upcoming quarters and the possibility that our deposits of cash and cash equivalents with major banks and financial institutions may exceed insured limits;

•

the strength of our competitive position and our ability to innovate and enhance our competitive differentiation;

•

our beliefs related to our existing facilities;

•

protection, development and monetization of our intellectual property portfolio;

•

our beliefs related to our relationship with our employees and the effect of increasing diversity within our workforce;

•

our beliefs regarding cybersecurity incidents;

•

our beliefs related to certain provisions in our bylaws and articles of incorporation; and

•

our beliefs related to legal proceedings and claims arising in the ordinary course of business.

We believe that the risk factors specified above and the risk factors contained in 2022 Part I, Item 1A. "Risk Factors" of our 2022 Annual Report, among others, could affect our future performance and the liquidity and value of our securities and cause our actual results to differ materially from those expressed or implied by forward-looking statements made by us or on our behalf. Investors should understand that it is not possible to predict or identify all risk factors and that there may be other factors that may cause our actual results to differ materially from the forward-looking statements. All forward-looking statements made by us or by persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of the filing of this Quarterly Report on Form 10-Q.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation (pursuant to Rule 13a-15(b) of the Exchange Act), under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. These disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective.

Changes in Controls

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three month period ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We completed our acquisition of EVRYTHNG on January 3, 2022. We have integrated EVRYTHNG into our internal control over financial reporting, and management's evaluation of the effectiveness of our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings.

We are subject from time to time to legal proceedings and claims arising in the ordinary course of business. At this time, we do not believe that the resolution of any such matters will have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

Our business, financial condition, results of operations and cash flows may be affected by a number of factors. Detailed information about risk factors that may affect Digimarc's actual results are set forth in Part I, Item 1A: "Risk Factors" of our 2022 Annual Report. The risks and uncertainties described in our 2022 Annual Report are those risks of which we are aware and that we consider to be material to our business. If any of those risks and uncertainties develop into actual events, our business, financial condition, results of operations or cash flows could be materially adversely affected. In that case, the trading price of our common stock could decline. As of September 30, 2023, there have been no material changes to the risk factors previously disclosed in our 2022 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchases

We repurchase shares of common stock in satisfaction of required withholding of income tax liability in connection with the vesting of restricted stock, restricted stock units and performance stock units.

The following table sets forth information regarding purchases of our equity securities during the three month period ended September 30, 2023:

							(d)
					(c)		Approximate
					Total number		dollar value
					of shares		of shares that
	(a)		(b)		purchased as		may yet be
	Total number		Average price		part of publicly		purchased
	of shares		paid per		announced plans		under the plans
Period	purchased (1)		share (1)		or programs		or programs
Month 1
July 1, 2023 to July 31, 2023		—	$	—		—	$	—
Month 2
August 1, 2023 to August 31, 2023		21,561	$	35.12		—	$	—
Month 3
September 1, 2023 to September 30, 2023		—	$	—		—	$	—
Total		21,561	$	35.12		—	$	—

⁽¹⁾	Shares of common stock withheld (purchased) by us in satisfaction of required withholding of income tax liability upon vesting of restricted stock, restricted stock units and performance stock units.

Table of Contents

Item 6. Exhibits.

Exhibit Number		Exhibit Description

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

32.1		Section 1350 Certification of Chief Executive Officer

32.2		Section 1350 Certification of Chief Financial Officer

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 7, 2023	DIGIMARC CORPORATION

	By:	/s/ CHARLES BECK
		CHARLES BECK
		Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

Exhibit 31.1

DIGIMARC CORPORATION

CERTIFICATION

I, Riley McCormack, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Digimarc Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2023

By:

/S/ RILEY MCCORMACK

RILEY MCCORMACK

Chief Executive Officer

Exhibit 31.2

DIGIMARC CORPORATION

CERTIFICATION

I, Charles Beck, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Digimarc Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2023

By:

/S/ CHARLES BECK

CHARLES BECK

Chief Financial Officer

Exhibit 32.1

DIGIMARC CORPORATION

CERTIFICATION

In connection with the periodic report of Digimarc Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission (the “Report”), I, Riley McCormack, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the U.S. Code, that to the best of my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: November 7, 2023

By:

/S/ RILEY MCCORMACK

RILEY MCCORMACK

Chief Executive Officer

Exhibit 32.2

DIGIMARC CORPORATION

CERTIFICATION

In connection with the periodic report of Digimarc Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2023 as filed with the Securities and Exchange Commission (the “Report”), I, Charles Beck, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the U.S. Code, that to the best of my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: November 7, 2023

By:

/S/ CHARLES BECK

CHARLES BECK

Chief Financial Officer

Document And Entity Information - shares	9 Months Ended
Document And Entity Information - shares	Sep. 30, 2023	Nov. 02, 2023
Document Information [Line Items]
Entity Central Index Key	0001438231
Entity Registrant Name	Digimarc CORP
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	001-34108
Entity Incorporation, State or Country Code	OR
Entity Tax Identification Number	26-2828185
Entity Address, Address Line One	8500 SW Creekside Place
Entity Address, City or Town	Beaverton
Entity Address, State or Province	OR
Entity Address, Postal Zip Code	97008
City Area Code	503
Local Phone Number	469-4800
Title of 12(b) Security	Common Stock, $0.001 Par Value Per Share
Trading Symbol	DMRC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		20,357,870

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 32,335	$ 33,598
Marketable securities	996	18,944
Trade accounts receivable, net	7,042	5,427
Other current assets	4,578	6,172
Total current assets	44,951	64,141
Property and equipment, net	1,656	2,390
Intangibles, net	28,977	33,170
Goodwill	8,323	8,229
Lease right of use assets	4,108	4,720
Other assets	827	1,127
Total assets	88,842	113,777
Current liabilities:
Accounts payable and other accrued liabilities	6,207	5,989
Deferred revenue	7,315	4,145
Total current liabilities	13,522	10,134
Long-term lease liabilities	6,170	5,977
Other long-term liabilities	267	76
Total liabilities	19,959	16,187
Commitments and contingencies (Note 16)
Shareholders’ equity:
Preferred stock (par value $0.001 per share, 2,500 authorized, 10 shares issued and outstanding at September 30, 2023 and December 31, 2022)	50	50
Common stock (par value $0.001 per share, 50,000 authorized, 20,356 and 20,260 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively)	20	20
Additional paid-in capital	373,844	367,692
Accumulated deficit	(301,195)	(265,809)
Accumulated other comprehensive loss	(3,836)	(4,363)
Total shareholders’ equity	68,883	97,590
Total liabilities and shareholders’ equity	$ 88,842	$ 113,777

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares shares in Thousands	Sep. 30, 2023	Dec. 31, 2022
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	2,500	2,500
Preferred stock, shares issued (in shares)	10	10
Preferred stock, shares outstanding (in shares)	10	10
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	50,000	50,000
Common stock, shares issued (in shares)	20,356	20,260
Common stock, shares outstanding (in shares)	20,356	20,260

Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
shares in Thousands, $ in Thousands

3 Months Ended

9 Months Ended

Sep. 30, 2023

Sep. 30, 2022

Sep. 30, 2023

Sep. 30, 2022

Revenue:

Revenue

$ 8,994

$ 7,821

$ 25,567

$ 22,979

Cost of revenue:

Cost of revenue

3,771

3,656

11,231

11,473

Gross profit

5,223

4,165

14,336

11,506

Operating expenses:

Sales and marketing

5,366

7,684

16,770

23,702

Research, development and engineering

6,308

7,575

20,295

19,731

General and administrative

4,433

4,132

13,412

15,027

Amortization expense on acquired intangible assets

272

301

800

964

Impairment of lease right of use assets and leasehold improvements

250

574

Total operating expenses

16,379

19,692

51,527

59,998

Operating loss

(11,156)

(15,527)

(37,191)

(48,492)

Other income, net

478

623

1,870

1,214

Loss before income taxes

(10,678)

(14,904)

(35,321)

(47,278)

Provision for income taxes

(45)

(26)

(65)

(72)

Net loss

$ (10,723)

$ (14,930)

$ (35,386)

$ (47,350)

Loss per share:

Loss per share — basic (in dollars per share)

$ (0.53)

$ (0.76)

$ (1.76)

$ (2.51)

Loss per share — diluted (in dollars per share)

$ (0.53)

$ (0.76)

$ (1.76)

$ (2.51)

Weighted average shares outstanding — basic (in shares)

20,217

19,721

20,158

18,877

Weighted average shares outstanding — diluted (in shares)

20,217

19,721

20,158

18,877

Comprehensive loss:

Unrealized gain (loss) on marketable securities, net of tax of $0

$ 0

$ 51

$ 144

$ (199)

Foreign currency translation adjustment, net of tax of $0

(983)

(3,118)

383

(6,737)

Other comprehensive income (loss)

(983)

(3,067)

527

(6,936)

Net loss

(10,723)

(14,930)

(35,386)

(47,350)

Comprehensive loss

(11,706)

(17,997)

(34,859)

(54,286)

Subscription [Member]

Revenue:

Revenue

4,811

4,086

13,374

11,121

Cost of revenue:

Cost of revenue

^[1]

698

1,006

2,264

2,934

Service [Member]

Revenue:

Revenue

4,183

3,735

12,193

11,858

Cost of revenue:

Cost of revenue

^[1]

1,938

1,602

5,621

5,177

Amortization Expense On Acquired Intangible Assets [Member]

Cost of revenue:

Cost of revenue

$ 1,135

$ 1,048

$ 3,346

$ 3,362

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

Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2021	10	16,940
Balance at Dec. 31, 2021	$ 50	$ 17	$ 261,324	$ (206,011)	$ 0	$ 55,380
Issuance of restricted common stock (in shares)	0	54
Issuance of restricted common stock	$ 0	$ 0	0	0	0	0
Vesting of restricted stock units (in shares)	0	119
Vesting of restricted stock units	$ 0	$ 0	0	0	0	0
Forfeiture of restricted common stock (in shares)	0	(26)
Forfeiture of restricted common stock	$ 0	$ 0	0	0	0	0
Purchase of common stock (in shares)	0	(94)
Purchase of common stock	$ 0	$ 0	(1,897)	0	0	(1,897)
Stock-based compensation	0	0	9,419	0	0	9,419
Unrealized gain (loss) on marketable securities, net of tax of $0	0	0	0	0	(199)	(199)
Foreign currency translation adjustment, net of tax of $0	0	0	0	0	(6,737)	(6,737)
Net loss	$ 0	$ 0	0	(47,350)	0	(47,350)
Issuance of common stock (in shares)	0	3,044
Issuance of common stock	$ 0	$ 3	90,608	0	0	90,611
Issuance of warrants for acquisition	$ 0	$ 0	1,601	0	0	1,601
Balance (in shares) at Sep. 30, 2022	10	20,037
Balance at Sep. 30, 2022	$ 50	$ 20	361,055	(253,361)	(6,936)	100,828
Balance (in shares) at Jun. 30, 2022	10	19,959
Balance at Jun. 30, 2022	$ 50	$ 20	357,509	(238,431)	(3,869)	115,279
Issuance of restricted common stock (in shares)	0	14
Issuance of restricted common stock	$ 0	$ 0	0	0	0	0
Vesting of restricted stock units (in shares)	0	102
Vesting of restricted stock units	$ 0	$ 0	0	0	0	0
Forfeiture of restricted common stock (in shares)	0	(5)
Forfeiture of restricted common stock	$ 0	$ 0	0	0	0	0
Purchase of common stock (in shares)	0	(55)
Purchase of common stock	$ 0	$ 0	(923)	0	0	(923)
Stock-based compensation	0	0	3,597	0	0	3,597
Unrealized gain (loss) on marketable securities, net of tax of $0	0	0	0	0	51	51
Foreign currency translation adjustment, net of tax of $0	0	0	0	0	(3,118)	(3,118)
Net loss	$ 0	$ 0	0	(14,930)	0	(14,930)
Issuance of common stock (in shares)	0	22
Issuance of common stock	$ 0	$ 0	872	0	0	872
Balance (in shares) at Sep. 30, 2022	10	20,037
Balance at Sep. 30, 2022	$ 50	$ 20	361,055	(253,361)	(6,936)	100,828
Balance (in shares) at Dec. 31, 2022	10	20,260
Balance at Dec. 31, 2022	$ 50	$ 20	367,692	(265,809)	(4,363)	97,590
Issuance of restricted common stock (in shares)	0	45
Issuance of restricted common stock	$ 0	$ 0	0	0	0	0
Vesting of restricted stock units (in shares)	0	117
Vesting of restricted stock units	$ 0	$ 0	0	0	0	0
Forfeiture of restricted common stock (in shares)	0	(6)
Forfeiture of restricted common stock	$ 0	$ 0	0	0	0	0
Purchase of common stock (in shares)	0	(72)
Purchase of common stock	$ 0	$ 0	(2,036)	0	0	(2,036)
Stock-based compensation	0	0	8,188	0	0	8,188
Unrealized gain (loss) on marketable securities, net of tax of $0	0	0	0	0	144	144
Foreign currency translation adjustment, net of tax of $0	0	0	0	0	383	383
Net loss	$ 0	$ 0	0	(35,386)	0	(35,386)
Issuance of common stock (in shares)	0	10
Issuance of common stock	$ 0	$ 0	0	0	0	0
Vesting of performance stock units (in shares)	0	2
Vesting of performance stock units	$ 0	$ 0	0	0	0	0
Balance (in shares) at Sep. 30, 2023	10	20,356
Balance at Sep. 30, 2023	$ 50	$ 20	373,844	(301,195)	(3,836)	68,883
Balance (in shares) at Jun. 30, 2023	10	20,334
Balance at Jun. 30, 2023	$ 50	$ 20	371,893	(290,472)	(2,853)	78,638
Issuance of restricted common stock (in shares)	0	0
Issuance of restricted common stock	$ 0	$ 0	0	0	0	0
Vesting of restricted stock units (in shares)	0	44
Vesting of restricted stock units	$ 0	$ 0	0	0	0	0
Forfeiture of restricted common stock (in shares)	0	(1)
Forfeiture of restricted common stock	$ 0	$ 0	0	0	0	0
Purchase of common stock (in shares)	0	(21)
Purchase of common stock	$ 0	$ 0	(756)	0	0	(756)
Stock-based compensation	0	0	2,707	0	0	2,707
Unrealized gain (loss) on marketable securities, net of tax of $0	0	0	0	0	0	0
Foreign currency translation adjustment, net of tax of $0	0	0	0	0	(983)	(983)
Net loss	$ 0	$ 0	0	(10,723)	0	(10,723)
Balance (in shares) at Sep. 30, 2023	10	20,356
Balance at Sep. 30, 2023	$ 50	$ 20	$ 373,844	$ (301,195)	$ (3,836)	$ 68,883

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flows from operating activities:
Net loss	$ (35,386)	$ (47,350)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and write-off of property and equipment	911	1,036
Amortization of acquired intangible assets	4,146	4,326
Amortization and write-off of other intangible assets	709	493
Amortization of lease right of use assets under operating leases	426	768
Stock-based compensation	8,146	9,310
Impairment of lease right of use assets and leasehold improvements	250	574
Changes in operating assets and liabilities:
Trade accounts receivable	(1,581)	(241)
Other current assets	1,688	(2,233)
Other assets	279	(611)
Accounts payable and other accrued liabilities	299	(2,153)
Deferred revenue	3,298	233
Lease liability and other long-term liabilities	136	(1,040)
Net cash used in operating activities	(16,679)	(36,888)
Cash flows from investing activities:
Net cash paid for acquisition	0	(3,512)
Purchase of property and equipment	(208)	(783)
Capitalized patent costs	(295)	(404)
Proceeds from maturities of marketable securities	26,696	17,498
Purchases of marketable securities	(8,664)	(5,873)
Net cash provided by investing activities	17,529	6,926
Cash flows from financing activities:
Issuance of common stock, net of issuance costs	0	58,220
Purchase of common stock	(2,036)	(1,560)
Repayment of loans	(33)	(32)
Net cash (used in) provided by financing activities	(2,069)	56,628
Effect of exchange rate on cash	(44)	(100)
Net (decrease) increase in cash and cash equivalents	(1,263)	26,566
Cash and cash equivalents at beginning of period	33,598	13,789
Cash and cash equivalents at end of period	32,335	40,355
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	138	90
Supplemental schedule of non-cash activities:
Property and equipment and patent costs in accounts payable	14	(21)
Stock-based compensation capitalized to software and patent costs	42	109
Purchase of common stock in accounts payable	0	(337)
Common stock issued for acquisition	0	32,393
Warrants issued for acquisition	0	1,601
Right of use assets obtained in exchange for lease obligations	$ 31	$ 5,176

Note 1 - Description of Business and Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Description of Business and Significant Accounting Policies

Description of Business

•

Interim Consolidated Financial Statements

Principles of Consolidation

Business Combinations

Accounting Pronouncements Adopted

Note 2 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Fair Value Disclosures [Text Block]

2. Fair Value of Financial Instruments

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

September 30, 2023	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	6,820	$	—	$	—	$	6,820
U.S. Treasuries		—		13,048		—		13,048
Commercial Paper		—		6,361		—		6,361
Federal agency notes		—		5,084		—		5,084
Total	$	6,820	$	24,493	$	—	$	31,313

December 31, 2022	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	2,073	$	—	$	—	$	2,073
Commercial paper		—		35,468		—		35,468
Corporate notes		—		8,432		—		8,432
Federal agency notes		—		4,423		—		4,423
Total	$	2,073	$	48,323	$	—	$	50,396

The fair value maturities of the Company's cash equivalents and marketable securities as of September 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	$	31,313	$	31,313	$	—	$	—	$	—

Note 3 - Revenue Recognition

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

3. Revenue Recognition

•

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 September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Commercial:
Subscription	$	4,511	$	3,786	$	12,474	$	10,033
Service		213		389		849		1,851
Total Commercial		4,724		4,175		13,323		11,884
Government:
Subscription	$	300	$	300	$	900	$	1,088
Service		3,970		3,346		11,344		10,007
Total Government		4,270		3,646		12,244		11,095
Total	$	8,994	$	7,821	$	25,567	$	22,979

The following table provides information about contract assets:

	*September 30,*		*December 31,*
	*2023*		*2022*
Contract acquisition costs, current	$	170	$	197
Contract acquisition costs, long-term		3		104
Total	$	173	$	301

The following table provides information about contract liabilities:

	*September 30,*		*December 31,*
	*2023*		*2022*
Deferred revenue, current	$	7,315	$	4,145
Deferred revenue, long-term		169		15
Total	$	7,484	$	4,160

The Company recognized $3,641 of revenue during the nine months ended September 30, 2023, that was included in the contract liability balance as of December 31, 2022.

Note 4 - Segment Information

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

4. Segment Information

Geographic Information

Revenue by geographic area, based upon the "bill-to" location, was as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Domestic	$	2,921	$	2,889	$	8,541	$	7,259
International ⁽¹⁾		6,073		4,932		17,026		15,720
Total	$	8,994	$	7,821	$	25,567	$	22,979

⁽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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Customer A		47	%		46	%		48	%		47	%
Customer B		21	%		23	%		21	%		15	%

Long-Lived Assets by Geographical Area

Long-lived assets by geographic area were as follows:

	*September 30,*		*December 31,*
	*2023*		*2022*
United States	$	1,616	$	2,324
Europe		40		66
Total	$	1,656	$	2,390

Note 5 - Stock-based Compensation

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

5. Stock-Based Compensation

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

Restricted Stock Awards

Restricted Stock Units

Performance Stock Units

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.

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,*
	*2023*		*2022*		*2023*			*2022*
Stock price	$	—	$	—	$	22.37		$	32.02
Expected volatility		—		—		74.7	%		82.8	%
Risk-free interest rate		—		—		4.3	%		1.8	%

Stock-Based Compensation

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Stock-based compensation:
Cost of revenue	$	310	$	270	$	866	$	736
Sales and marketing		606		1,461		1,930		3,354
Research, development and engineering		658		916		2,269		2,066
General and administrative		1,118		921		3,081		3,154
Stock-based compensation expense		2,692		3,568		8,146		9,310
Capitalized to software and patent costs		15		29		42		109
Total stock-based compensation	$	2,707	$	3,597	$	8,188	$	9,419

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,*
	*2023*		*2022*
Total unrecognized compensation costs	$	17,623	$	16,051

Total unrecognized compensation costs will be adjusted for any future forfeitures if and when they occur.

		*RSAs*				*RSUs*				*PSUs*
Weighted average period (in years)			0.91				1.62				1.89

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 September 30, 2023:	*Options*			*Price*			*Fair Value*			*Value*
Outstanding at June 30, 2023		51		$	39.14		$	21.72
Granted		—		$	—		$	—
Exercised		—		$	—		$	—
Forfeited or expired		(50	)	$	(39.54	)	$	(21.72	)
Outstanding at September 30, 2023		1		$	22.15		$	—		$	12

				*Weighted*			*Weighted*
				*Average*			*Average*			*Aggregate*
	*Number of*			*Exercise*			*Grant Date*			*Intrinsic*
Nine Months Ended September 30, 2023:	*Options*			*Price*			*Fair Value*			*Value*
Outstanding at December 31, 2022		51		$	39.14		$	21.72
Granted		—		$	—		$	—
Exercised		—		$	—		$	—
Forfeited or expired		(50	)	$	(39.54	)	$	(21.72	)
Outstanding at September 30, 2023		1		$	22.15		$	—		$	12
Exercisable at September 30, 2023		1		$	22.15		$	—		$	12
Unvested at September 30, 2023		—		$	—		$	—		$	—

Restricted Stock Awards Activity

The following table presents the unvested RSA activity:

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at June 30, 2023		141		$	31.04
Granted		—		$	—
Vested		(18	)	$	(32.16	)
Forfeited		(1	)	$	(35.39	)
Unvested balance at September 30, 2023		122		$	30.84

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		196		$	32.06
Granted		45		$	22.10
Vested		(113	)	$	(29.23	)
Forfeited		(6	)	$	(34.44	)
Unvested balance at September 30, 2023		122		$	30.84

The fair value of RSAs vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of RSAs vested	$	613	$	949	$	2,071	$	3,727

Restricted Stock Units Activity

The following table presents the unvested RSU activity:

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at June 30, 2023		524		$	23.56
Granted		9		$	33.84
Vested		(44	)	$	(24.34	)
Forfeited		(7	)	$	(22.12	)
Unvested balance at September 30, 2023		482		$	23.68

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		370		$	24.77
Granted		289		$	22.86
Vested		(117	)	$	(24.43	)
Forfeited		(60	)	$	(24.95	)
Unvested balance at September 30, 2023		482		$	23.68

The fair value of RSU awards vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of RSU awards vested	$	1,486	$	1,570	$	3,313	$	1,903

Performance Stock Units Activity

The following table presents the unvested PSU activity:

			*Weighted*
			*Average*
	*Number of*		*Grant Date*
Three Months Ended September 30, 2023:	*Shares*		*Fair Value*
Unvested balance at June 30, 2023		192	$	29.01
Change in units based on performance expectations		—	$	—
Granted		—	$	—
Vested		—	$	—
Forfeited		—	$	—
Unvested balance at September 30, 2023		192	$	29.01

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		67		$	31.92
Change in units based on performance expectations		(6	)	$	(32.02	)
Granted		134		$	27.75
Vested		(2	)	$	(32.02	)
Forfeited		(1	)	$	(32.02	)
Unvested balance at September 30, 2023		192		$	29.01

The fair value of PSU awards vested is as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of PSU awards vested	$	—	$	—	$	54	$	—

Note 6 - Shareholders' Equity

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Equity [Text Block]

6. Shareholders' Equity

Registered Direct Offering

Note 7 - Earnings Per Share

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Earnings Per Share [Text Block]

7. Earnings Per Share

The Company calculates basic and diluted earnings per share in accordance with ASC 260, "Earnings Per Share," using the treasury stock method.

The following table reconciles earnings (loss) per share:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Basic Earnings (Loss) per Share:
Net loss — basic	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)
Weighted average shares outstanding — basic		20,217			19,721			20,158			18,877
Basic loss per share	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)

Diluted Earnings (Loss) per Share:
Net loss — diluted	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)
Weighted average shares outstanding — diluted		20,217			19,721			20,158			18,877
Diluted loss per share	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Anti-dilutive shares due to:
Exercise prices higher than the average market price		—		51		—		50
Net loss		237		—		110		—

Note 8 - Trade Accounts Receivable

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

8. Trade Accounts Receivable

Trade Accounts Receivable

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

	*September 30,*			*December 31,*
	*2023*			*2022*
Trade accounts receivable, current	$	7,156		$	5,541
Trade accounts receivable, long-term		12			37
Allowance for doubtful accounts		(114	)		(114	)
Trade accounts receivable, net	$	7,054		$	5,464
Unpaid deferred revenue included in trade accounts receivable	$	1,964		$	2,183

Allowance for Doubtful Accounts

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.

Major Customers

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

	*September 30,*	*December 31,*
	*2023*	*2022*
Company A	39%		55	%
Company B	22%		*
Company C	11%		*

* Less than 10%

Note 9 - Business Combination

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Business Combination Disclosure [Text Block]

9. Business Combination

In August 2022, the Company issued 22 additional shares of common stock of the Company at the fair value of $872, that were originally held back for post-closing adjustments.

In January 2023, the Company issued 10 additional shares of common stock of the Company at the fair value of $428, that were originally held back for indemnification obligations.

The following table presents the final purchase price allocation:

	Purchase Price
	Allocation
	January 3, 2022
Trade accounts receivable, net	$	762
Other current assets		2,178
Property and equipment, net		99
Lease right of use assets and other long-term assets		484
Intangibles		35,720
Goodwill		7,970
Accounts payable and other accrued liabilities		(5,395	)
Deferred revenue		(1,678	)
Loan payable to related party		(2,001	)
Lease liability and other long-term liabilities		(205	)
Total purchase price	$	37,934

Developed Technology

Customer Relationships

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Revenue	$	8,994		$	7,821		$	25,567		$	22,979
Net loss	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(46,903	)
Loss per share:
Basic	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.54	)
Diluted	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.54	)

Note 10 - Property and Equipment

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

10. Property and Equipment

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

	*September 30,*			*December 31,*
	*2023*			*2022*
Office furniture and fixtures	$	1,435		$	1,613
Software		5,483			5,747
Equipment		2,523			4,785
Leasehold improvements		1,858			1,861
Gross property and equipment		11,299			14,006
Less accumulated depreciation		(9,643	)		(11,616	)
Property and equipment, net	$	1,656		$	2,390

Note 11 - Goodwill

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Goodwill Disclosure [Text Block]

11. Goodwill

Balance at December 31, 2022	$	8,229
Currency translation adjustments		94
Balance at September 30, 2023	$	8,323

Note 12 - Intangibles

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

12. Intangibles

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)*		*2023*			*2022*
Capitalized patent costs		~17	$	9,291		$	10,646

Intangible assets acquired:
Purchased intellectual property		10		250			250
Developed technology		5		21,871			21,661
Customer relationships		10		10,451			10,351
Gross intangible assets				41,863			42,908
Accumulated amortization				(12,886	)		(9,738	)
Intangibles, net			$	28,977		$	33,170

Amortization expense on intangible assets was as follows:

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Amortization expense	$	1,550	$	1,496	$	4,579	$	4,756

For intangible assets recorded at September 30, 2023, the estimated future aggregate amortization expense for the years ending December 31, 2023 through December 31, 2027 is as follows:

	*Amortization*
As of September 30, 2023	*Expense*
Remaining in 2023	$	1,492
2024	$	5,967
2025	$	5,946
2026	$	5,913
2027	$	1,504

Note 13 - Leases

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

13. Leases

The Company accounts for leases in accordance with ASC 842, "Leases."

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,*
	*2023*			*2022*
Lease right of use assets	$	4,108		$	4,720
Lease liabilities, current	$	468		$	939
Lease liabilities, long-term	$	6,170		$	5,977

Weighted-average remaining life (in years)		6.6			6.7
Weighted-average discount rate		9	%		9	%

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

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Operating lease expense	$	347	$	498	$	1,189	$	1,422
Cash paid for operating leases	$	260	$	395	$	909	$	1,185

	*Cash*
	*Payment*
As of September 30, 2023:	*Obligations*
Remaining in 2023	$	219
2024		1,186
2025		1,317
2026		1,356
2027		1,397
Thereafter		3,751
Total lease payments		9,226
Imputed interest		(2,588	)
Total minimum lease payments	$	6,638

Note 14 - Other Income

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Other Income and Other Expense Disclosure [Text Block]

14. Other Income

The following table provides information about other income, net:

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*		*2022*
Interest income	$	423		$	249		$	1,283	$	340
Refundable tax credit		120			376			526		878
Foreign currency gains (losses)		(65	)		(6	)		58		(19	)
Other income		—			4			3		15
Total other income, net	$	478		$	623		$	1,870	$	1,214

Note 15 - Income Taxes

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

15. 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, 2023 and 2022 was 0% and 0%, respectively.

Note 16 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

16. Commitments and Contingencies

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2023

Accounting Policies [Abstract]

Description of Business [Policy Text Block]

Description of Business

•

Basis of Accounting, Policy [Policy Text Block]

Interim Consolidated Financial Statements

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

Business Combinations Policy [Policy Text Block]

Business Combinations

New Accounting Pronouncements, Policy [Policy Text Block]

Accounting Pronouncements Adopted

Note 2 - Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

September 30, 2023	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	6,820	$	—	$	—	$	6,820
U.S. Treasuries		—		13,048		—		13,048
Commercial Paper		—		6,361		—		6,361
Federal agency notes		—		5,084		—		5,084
Total	$	6,820	$	24,493	$	—	$	31,313

December 31, 2022	*Level 1*		*Level 2*		*Level 3*		*Total*
Money market securities	$	2,073	$	—	$	—	$	2,073
Commercial paper		—		35,468		—		35,468
Corporate notes		—		8,432		—		8,432
Federal agency notes		—		4,423		—		4,423
Total	$	2,073	$	48,323	$	—	$	50,396

Investments Classified by Contractual Maturity Date [Table Text Block]

	*Maturities by Period*
			*Less than*		1-5		5-10		*More than*
	*Total*		*1 year*		*years*		*years*		*10 years*
Cash equivalents and marketable securities	$	31,313	$	31,313	$	—	$	—	$	—

Note 3 - Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Disaggregation of Revenue [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Commercial:
Subscription	$	4,511	$	3,786	$	12,474	$	10,033
Service		213		389		849		1,851
Total Commercial		4,724		4,175		13,323		11,884
Government:
Subscription	$	300	$	300	$	900	$	1,088
Service		3,970		3,346		11,344		10,007
Total Government		4,270		3,646		12,244		11,095
Total	$	8,994	$	7,821	$	25,567	$	22,979

Contract With Customers, Contract Acquisition Costs [Table Text Block]

	*September 30,*		*December 31,*
	*2023*		*2022*
Contract acquisition costs, current	$	170	$	197
Contract acquisition costs, long-term		3		104
Total	$	173	$	301

Contract with Customer, Contract Asset, Contract Liability, and Receivable [Table Text Block]

	*September 30,*		*December 31,*
	*2023*		*2022*
Deferred revenue, current	$	7,315	$	4,145
Deferred revenue, long-term		169		15
Total	$	7,484	$	4,160

Note 4 - Segment Information (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Domestic	$	2,921	$	2,889	$	8,541	$	7,259
International ⁽¹⁾		6,073		4,932		17,026		15,720
Total	$	8,994	$	7,821	$	25,567	$	22,979

Schedule of Revenue by Major Customers by Reporting Segments [Table Text Block]

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Customer A		47	%		46	%		48	%		47	%
Customer B		21	%		23	%		21	%		15	%

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	*September 30,*		*December 31,*
	*2023*		*2022*
United States	$	1,616	$	2,324
Europe		40		66
Total	$	1,656	$	2,390

Note 5 - Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Stock-based compensation:
Cost of revenue	$	310	$	270	$	866	$	736
Sales and marketing		606		1,461		1,930		3,354
Research, development and engineering		658		916		2,269		2,066
General and administrative		1,118		921		3,081		3,154
Stock-based compensation expense		2,692		3,568		8,146		9,310
Capitalized to software and patent costs		15		29		42		109
Total stock-based compensation	$	2,707	$	3,597	$	8,188	$	9,419

Share-Based Payment Arrangement, Nonvested Award, Cost [Table Text Block]

	*September 30,*		*December 31,*
	*2023*		*2022*
Total unrecognized compensation costs	$	17,623	$	16,051

Employee Service Share Based Compensation Non Vested Awards Compensation Cost Not Yet Recognized Period for Recognition [Table Text Block]

		*RSAs*				*RSUs*				*PSUs*
Weighted average period (in years)			0.91				1.62				1.89

Share-Based Payment Arrangement, Option, Activity [Table Text Block]

				*Weighted*			*Weighted*
				*Average*			*Average*			*Aggregate*
	*Number of*			*Exercise*			*Grant Date*			*Intrinsic*
Three Months Ended September 30, 2023:	*Options*			*Price*			*Fair Value*			*Value*
Outstanding at June 30, 2023		51		$	39.14		$	21.72
Granted		—		$	—		$	—
Exercised		—		$	—		$	—
Forfeited or expired		(50	)	$	(39.54	)	$	(21.72	)
Outstanding at September 30, 2023		1		$	22.15		$	—		$	12

				*Weighted*			*Weighted*
				*Average*			*Average*			*Aggregate*
	*Number of*			*Exercise*			*Grant Date*			*Intrinsic*
Nine Months Ended September 30, 2023:	*Options*			*Price*			*Fair Value*			*Value*
Outstanding at December 31, 2022		51		$	39.14		$	21.72
Granted		—		$	—		$	—
Exercised		—		$	—		$	—
Forfeited or expired		(50	)	$	(39.54	)	$	(21.72	)
Outstanding at September 30, 2023		1		$	22.15		$	—		$	12
Exercisable at September 30, 2023		1		$	22.15		$	—		$	12
Unvested at September 30, 2023		—		$	—		$	—		$	—

Nonvested Restricted Stock Shares Activity [Table Text Block]

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at June 30, 2023		141		$	31.04
Granted		—		$	—
Vested		(18	)	$	(32.16	)
Forfeited		(1	)	$	(35.39	)
Unvested balance at September 30, 2023		122		$	30.84

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		196		$	32.06
Granted		45		$	22.10
Vested		(113	)	$	(29.23	)
Forfeited		(6	)	$	(34.44	)
Unvested balance at September 30, 2023		122		$	30.84

Schedule of Fair Value of Restricted Stock Awards Vested [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of RSAs vested	$	613	$	949	$	2,071	$	3,727

Share-Based Payment Arrangement, Restricted Stock Unit, Activity [Table Text Block]

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Three Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at June 30, 2023		524		$	23.56
Granted		9		$	33.84
Vested		(44	)	$	(24.34	)
Forfeited		(7	)	$	(22.12	)
Unvested balance at September 30, 2023		482		$	23.68

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		370		$	24.77
Granted		289		$	22.86
Vested		(117	)	$	(24.43	)
Forfeited		(60	)	$	(24.95	)
Unvested balance at September 30, 2023		482		$	23.68

Schedule of Fair Value of Restricted Stock Units Vested [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of RSU awards vested	$	1,486	$	1,570	$	3,313	$	1,903

Schedule of Fair Value of Performance Stock Units Vested [Table Text Block]

			*Weighted*
			*Average*
	*Number of*		*Grant Date*
Three Months Ended September 30, 2023:	*Shares*		*Fair Value*
Unvested balance at June 30, 2023		192	$	29.01
Change in units based on performance expectations		—	$	—
Granted		—	$	—
Vested		—	$	—
Forfeited		—	$	—
Unvested balance at September 30, 2023		192	$	29.01

				*Weighted*
				*Average*
	*Number of*			*Grant Date*
Nine Months Ended September 30, 2023:	*Shares*			*Fair Value*
Unvested balance at December 31, 2022		67		$	31.92
Change in units based on performance expectations		(6	)	$	(32.02	)
Granted		134		$	27.75
Vested		(2	)	$	(32.02	)
Forfeited		(1	)	$	(32.02	)
Unvested balance at September 30, 2023		192		$	29.01

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Fair value of PSU awards vested	$	—	$	—	$	54	$	—

Black Scholes Option Valuation [Member]

Notes Tables

Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*			*2022*
Stock price	$	—	$	—	$	22.37		$	32.02
Expected volatility		—		—		74.7	%		82.8	%
Risk-free interest rate		—		—		4.3	%		1.8	%

Note 7 - Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Basic Earnings (Loss) per Share:
Net loss — basic	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)
Weighted average shares outstanding — basic		20,217			19,721			20,158			18,877
Basic loss per share	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)

Diluted Earnings (Loss) per Share:
Net loss — diluted	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(47,350	)
Weighted average shares outstanding — diluted		20,217			19,721			20,158			18,877
Diluted loss per share	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.51	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Anti-dilutive shares due to:
Exercise prices higher than the average market price		—		51		—		50
Net loss		237		—		110		—

Note 8 - Trade Accounts Receivable (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	*September 30,*			*December 31,*
	*2023*			*2022*
Trade accounts receivable, current	$	7,156		$	5,541
Trade accounts receivable, long-term		12			37
Allowance for doubtful accounts		(114	)		(114	)
Trade accounts receivable, net	$	7,054		$	5,464
Unpaid deferred revenue included in trade accounts receivable	$	1,964		$	2,183

Schedule of Accounts Receivable By Major Customers By Reporting Segments [Table Text Block]

	*September 30,*	*December 31,*
	*2023*	*2022*
Company A	39%		55	%
Company B	22%		*
Company C	11%		*

Note 9 - Business Combination (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

	Purchase Price
	Allocation
	January 3, 2022
Trade accounts receivable, net	$	762
Other current assets		2,178
Property and equipment, net		99
Lease right of use assets and other long-term assets		484
Intangibles		35,720
Goodwill		7,970
Accounts payable and other accrued liabilities		(5,395	)
Deferred revenue		(1,678	)
Loan payable to related party		(2,001	)
Lease liability and other long-term liabilities		(205	)
Total purchase price	$	37,934

Business Acquisition, Pro Forma Information [Table Text Block]

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*			*2022*
Revenue	$	8,994		$	7,821		$	25,567		$	22,979
Net loss	$	(10,723	)	$	(14,930	)	$	(35,386	)	$	(46,903	)
Loss per share:
Basic	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.54	)
Diluted	$	(0.53	)	$	(0.76	)	$	(1.76	)	$	(2.54	)

Note 10 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Property, Plant and Equipment [Table Text Block]

	*September 30,*			*December 31,*
	*2023*			*2022*
Office furniture and fixtures	$	1,435		$	1,613
Software		5,483			5,747
Equipment		2,523			4,785
Leasehold improvements		1,858			1,861
Gross property and equipment		11,299			14,006
Less accumulated depreciation		(9,643	)		(11,616	)
Property and equipment, net	$	1,656		$	2,390

Note 11 - Goodwill (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Goodwill [Table Text Block]

Balance at December 31, 2022	$	8,229
Currency translation adjustments		94
Balance at September 30, 2023	$	8,323

Note 12 - Intangibles (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	*Estimated Life*		*September 30,*			*December 31,*
	*(years)*		*2023*			*2022*
Capitalized patent costs		~17	$	9,291		$	10,646

Intangible assets acquired:
Purchased intellectual property		10		250			250
Developed technology		5		21,871			21,661
Customer relationships		10		10,451			10,351
Gross intangible assets				41,863			42,908
Accumulated amortization				(12,886	)		(9,738	)
Intangibles, net			$	28,977		$	33,170

Finite-Lived Intangible Assets Amortization Expense [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Amortization expense	$	1,550	$	1,496	$	4,579	$	4,756

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

	*Amortization*
As of September 30, 2023	*Expense*
Remaining in 2023	$	1,492
2024	$	5,967
2025	$	5,946
2026	$	5,913
2027	$	1,504

Note 13 - Leases (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Lessee Operating Lease Details of Leases Presented in Balance Sheets [Table Text Block]

	*September 30,*			*December 31,*
	*2023*			*2022*
Lease right of use assets	$	4,108		$	4,720
Lease liabilities, current	$	468		$	939
Lease liabilities, long-term	$	6,170		$	5,977

Weighted-average remaining life (in years)		6.6			6.7
Weighted-average discount rate		9	%		9	%

Lease, Cost [Table Text Block]

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2023*		*2022*		*2023*		*2022*
Operating lease expense	$	347	$	498	$	1,189	$	1,422
Cash paid for operating leases	$	260	$	395	$	909	$	1,185

Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block]

	*Cash*
	*Payment*
As of September 30, 2023:	*Obligations*
Remaining in 2023	$	219
2024		1,186
2025		1,317
2026		1,356
2027		1,397
Thereafter		3,751
Total lease payments		9,226
Imputed interest		(2,588	)
Total minimum lease payments	$	6,638

Note 14 - Other Income (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Other Nonoperating Income (Expense) [Table Text Block]

	*Three Months Ended September 30,*						*Nine Months Ended September 30,*
	*2023*			*2022*			*2023*		*2022*
Interest income	$	423		$	249		$	1,283	$	340
Refundable tax credit		120			376			526		878
Foreign currency gains (losses)		(65	)		(6	)		58		(19	)
Other income		—			4			3		15
Total other income, net	$	478		$	623		$	1,870	$	1,214

Note 2 - Fair Value of Financial Instruments (Details Textual) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Cash Equivalents, at Carrying Value	$ 30,317	$ 31,452

Note 2 - Fair Value of Financial Instruments - Summary of Fair Value Hierarchy for Financial Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets, fair value	$ 31,313
Fair Value, Recurring [Member]
Assets, fair value	31,313	$ 50,396
Fair Value, Recurring [Member] \| Money Market Securities [Member]
Assets, fair value	6,820	2,073
Fair Value, Recurring [Member] \| US Treasury Securities [Member]
Assets, fair value	13,048
Fair Value, Recurring [Member] \| Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Assets, fair value	6,361	35,468
Fair Value, Recurring [Member] \| Corporate Debt Securities [Member]
Assets, fair value		8,432
Fair Value, Recurring [Member] \| Federal Agency Notes [Member]
Assets, fair value	5,084	4,423
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 1 [Member]
Assets, fair value	6,820	2,073
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 1 [Member] \| Money Market Securities [Member]
Assets, fair value	6,820	2,073
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 1 [Member] \| US Treasury Securities [Member]
Assets, fair value	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 1 [Member] \| Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Assets, fair value	0	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 1 [Member] \| Corporate Debt Securities [Member]
Assets, fair value		0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 1 [Member] \| Federal Agency Notes [Member]
Assets, fair value	0	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 2 [Member]
Assets, fair value	24,493	48,323
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 2 [Member] \| Money Market Securities [Member]
Assets, fair value	0	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 2 [Member] \| US Treasury Securities [Member]
Assets, fair value	13,048
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 2 [Member] \| Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Assets, fair value	6,361	35,468
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 2 [Member] \| Corporate Debt Securities [Member]
Assets, fair value		8,432
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 2 [Member] \| Federal Agency Notes [Member]
Assets, fair value	5,084	4,423
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 3 [Member]
Assets, fair value	0	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 3 [Member] \| Money Market Securities [Member]
Assets, fair value	0	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 3 [Member] \| US Treasury Securities [Member]
Assets, fair value	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 3 [Member] \| Commercial Paper, Not Included with Cash and Cash Equivalents [Member]
Assets, fair value	0	0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 3 [Member] \| Corporate Debt Securities [Member]
Assets, fair value		0
Fair Value, Recurring [Member] \| Fair Value, Inputs, Level 3 [Member] \| Federal Agency Notes [Member]
Assets, fair value	$ 0	$ 0

Note 2 - Fair Value of Financial Instruments - Summary of Fair Value Maturities for Financial Asset (Details) $ in Thousands	Sep. 30, 2023 USD ($)
Assets, fair value	$ 31,313
Cash equivalents and marketable securities, less than 1 year	31,313
Cash equivalents and marketable securities, 1-5 years	0
Cash equivalents and marketable securities, 5-10 years	0
Cash equivalents and marketable securities, more than 10 years	$ 0

Note 3 - Revenue Recognition (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Subscription Revenue Term, Minimum (Year)	1 year
Subscription Revenue Term, Maximum (Year)	3 years
Period of Revenue From Services (Month)	1 month
Contract with Customer, Liability, Revenue Recognized	$ 3,641
Contract With Customer Liability, Transaction Price From Contractual Obligations	$ 33,129	$ 29,600

Note 3 - Revenue Recognition - Schedule of Disaggregated Revenue By Major Product Line in Single Reporting Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Revenue	$ 8,994	$ 7,821	$ 25,567	$ 22,979
Commercial [Member]
Revenue	4,724	4,175	13,323	11,884
The Government [Member]
Revenue	4,270	3,646	12,244	11,095
Subscription [Member]
Revenue	4,811	4,086	13,374	11,121
Subscription [Member] \| Commercial [Member]
Revenue	4,511	3,786	12,474	10,033
Subscription [Member] \| The Government [Member]
Revenue	300	300	900	1,088
Service [Member]
Revenue	4,183	3,735	12,193	11,858
Service [Member] \| Commercial [Member]
Revenue	213	389	849	1,851
Service [Member] \| The Government [Member]
Revenue	$ 3,970	$ 3,346	$ 11,344	$ 10,007

Note 3 - Revenue Recognition - Schedule of Contract Liabilities from Contracts with Customers from Acquisition (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Contract acquisition costs, current	$ 170	$ 197
Contract acquisition costs, long-term	3	104
Total	$ 173	$ 301

Note 3 - Revenue Recognition - Schedule of Contract Liabilities from Contracts with Customers (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Deferred revenue, current	$ 7,315	$ 4,145
Deferred revenue, long-term	169	15
Total	$ 7,484	$ 4,160

Note 4 - Segment Information - Geographical Segment Revenue (Details) - USD ($)
$ in Thousands

3 Months Ended

9 Months Ended

Sep. 30, 2023

Sep. 30, 2022

Sep. 30, 2023

Sep. 30, 2022

Revenue

$ 8,994

$ 7,821

$ 25,567

$ 22,979

UNITED STATES

Revenue

2,921

2,889

8,541

7,259

Non-US [Member]

Revenue

^[1]

$ 6,073

$ 4,932

$ 17,026

$ 15,720

[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.

Note 4 - Segment Information - Customers Accounted for 10% or More of Revenue (Details) - Revenue Benchmark [Member] - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Customer A [Member]
Entity wide revenue major customers percentage	47.00%	46.00%	48.00%	47.00%
Customer B [Member]
Entity wide revenue major customers percentage	21.00%	23.00%	21.00%	15.00%

Note 4 - Segment Information - Long-Lived Tangible Assets by Geographical Area (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Long-lived tangible assets	$ 88,842	$ 113,777
Operating Segments [Member]
Long-lived tangible assets	1,656	2,390
Operating Segments [Member] \| UNITED STATES
Long-lived tangible assets	1,616	2,324
Operating Segments [Member] \| Europe [Member]
Long-lived tangible assets	$ 40	$ 66

Note 5 - Stock-based Compensation (Details Textual) - $ / shares	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023	Sep. 30, 2022	Jan. 03, 2022
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)	0	0	1,000
Share Price (in dollars per share)	$ 32.49	$ 32.49		$ 40.84
Restricted Stock [Member] \| Employee [Member] \| Minimum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)		3 years
Restricted Stock [Member] \| Employee [Member] \| Maximum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)		4 years
Restricted Stock [Member] \| Director [Member] \| Minimum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)		1 year
Restricted Stock [Member] \| Director [Member] \| Maximum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)		3 years
Restricted Stock Units (RSUs) [Member] \| Minimum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)		3 years
Restricted Stock Units (RSUs) [Member] \| Maximum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)		4 years
Performance Shares [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period (Year)		3 years
Share-Based Payment Arrangement, Option [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares)	1,444	1,444

Note 5 - Stock-Based Compensation - Stock Option Valuation Assumptions (Details) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Stock price (in dollars per share)	$ 0		$ 0
Share-Based Payment Arrangement, Option [Member]
Stock price (in dollars per share)	$ 0	$ 0	$ 22.37	$ 32.02
Expected volatility	0.00%	0.00%	74.70%	82.80%
Risk-free interest rate	0.00%	0.00%	4.30%	1.80%

Note 5 - Stock-Based Compensation - Allocation of Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Stock-based compensation expense	$ 2,692	$ 3,568	$ 8,146	$ 9,310
Stock-based compensation capitalized to software and patent costs	15	29	42	109
Total stock-based compensation	2,707	3,597	8,188	9,419
Cost of Sales [Member]
Stock-based compensation expense	310	270	866	736
Selling and Marketing Expense [Member]
Stock-based compensation expense	606	1,461	1,930	3,354
Research and Development Expense [Member]
Stock-based compensation expense	658	916	2,269	2,066
General and Administrative Expense [Member]
Stock-based compensation expense	$ 1,118	$ 921	$ 3,081	$ 3,154

Note 5 - Stock-Based Compensation - Unrecognized Compensation Cost Related to Non-Vested Stock-Based Awards Granted (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Total unrecognized compensation costs	$ 17,623	$ 16,051

Note 5 - Stock-Based Compensation - Weighted Average Period for Recognition of Unrecognized Compensation Cost for Stock Options and Restricted Stock (Details)	9 Months Ended
	Sep. 30, 2023
Restricted Stock [Member]
Weighted average period (in years) (Year)	10 months 28 days
Restricted Stock Units (RSUs) [Member]
Weighted average period (in years) (Year)	1 year 7 months 13 days
Performance Shares [Member]
Weighted average period (in years) (Year)	1 year 10 months 20 days

Note 5 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023	Sep. 30, 2022
Options outstanding, shares (in shares)	51	51
Options outstanding, weighted average exercise price (in dollars per share)	$ 39.14	$ 39.14
Options outstanding, weighted average grant date fair value (in dollars per share)	$ 21.72	$ 21.72
Granted, shares (in shares)	0	0	1
Stock price (in dollars per share)	$ 0	$ 0
Granted, weighted average grant date fair value (in dollars per share)	$ 0	$ 0
Exercised, shares (in shares)	0	0
Exercised, weighted average exercise price (in dollars per share)	$ 0	$ 0
Exercised, weighted average grant date fair value (in dollars per share)	$ 0	$ 0
Forfeited or expired, shares (in shares)	(50)	(50)
Forfeited or expired, weighted average exercise price (in dollars per share)	$ (39.54)	$ (39.54)
Forfeited or expired, weighted average grant date fair value (in dollars per share)	$ (21.72)	$ (21.72)
Options outstanding, shares (in shares)	1	1
Options outstanding, weighted average exercise price (in dollars per share)	$ 22.15	$ 22.15
Options outstanding, weighted average grant date fair value (in dollars per share)	$ 0	$ 0
Options outstanding, aggregate intrinsic value	$ 12	$ 12
Options exercisable, shares (in shares)	1	1
Options exercisable, weighted average exercise price (in dollars per share)	$ 22.15	$ 22.15
Options unvested, shares (in shares)	0	0

Note 5 - Stock-Based Compensation - Schedule of Unvested Restricted Stock Activity (Details) - Restricted Stock [Member] - $ / shares shares in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023
Unvested (in shares)	141	196
Unvested, weighted average grant date fair value (in dollars per share)	$ 31.04	$ 32.06
Granted (in shares)	0	45
Granted, weighted average grant date fair value (in dollars per share)	$ 0	$ 22.1
Vested (in shares)	(18)	(113)
Vested, weighted average grant date fair value (in dollars per share)	$ (32.16)	$ (29.23)
Forfeited (in shares)	(1)	(6)
Forfeited, weighted average grant date fair value (in dollars per share)	$ (35.39)	$ (34.44)
Unvested (in shares)	122	122
Unvested, weighted average grant date fair value (in dollars per share)	$ 30.84	$ 30.84

Note 5 - Stock-Based Compensation - Fair Value of Vested Restricted Stock Awards (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Restricted Stock [Member]
Fair value of RSAs vested	$ 613	$ 949	$ 2,071	$ 3,727

Note 5 - Stock-Based Compensation - Schedule of Unvested Restricted Stock Units (Details) - Restricted Stock Units (RSUs) [Member] - $ / shares shares in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023
Unvested (in shares)	524	370
Unvested, weighted average grant date fair value (in dollars per share)	$ 23.56	$ 24.77
Granted (in shares)	9	289
Granted, weighted average grant date fair value (in dollars per share)	$ 33.84	$ 22.86
Vested (in shares)	(44)	(117)
Vested, weighted average grant date fair value (in dollars per share)	$ (24.34)	$ (24.43)
Forfeited (in shares)	(7)	(60)
Forfeited, weighted average grant date fair value (in dollars per share)	$ (22.12)	$ (24.95)
Unvested (in shares)	482	482
Unvested, weighted average grant date fair value (in dollars per share)	$ 23.68	$ 23.68

Note 5 - Stock-Based Compensation - Fair Value of Vested Restricted Stock Units (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Restricted Stock Units (RSUs) [Member]
Fair value of RSAs vested	$ 1,486	$ 1,570	$ 3,313	$ 1,903

Note 5 - Stock-Based Compensation - Fair Value of Vested Performance Stock Units (Details) - Performance Shares [Member] - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Unvested (in shares)	192		67
Unvested, weighted average grant date fair value (in dollars per share)	$ 29.01		$ 31.92
Change in units based on performance expectations (in shares)	0		(6)
Change in units based on performance expectations, weighted average grant date fair valu (in dollars per share)	$ 0		$ (32.02)
Granted (in shares)	0		134
Granted, weighted average grant date fair value (in dollars per share)	$ 0		$ 27.75
Vested (in shares)	0		(2)
Vested, weighted average grant date fair value (in dollars per share)	$ 0		$ (32.02)
Forfeited (in shares)	0		(1)
Forfeited, weighted average grant date fair value (in dollars per share)	$ 0		$ (32.02)
Unvested (in shares)	192		192
Unvested, weighted average grant date fair value (in dollars per share)	$ 29.01		$ 29.01
Fair value of RSAs vested	$ 0	$ 0	$ 54	$ 0

Note 6 - Shareholders' Equity (Details Textual) - Common Stock [Member] - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended	9 Months Ended
	Apr. 07, 2022	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Stock Issued During Period, Shares, New Issues (in shares)		22	10	3,044
Registered Direct Offering [Member]
Stock Issued During Period, Shares, New Issues (in shares)	2,250
Shares Issued, Price Per Share (in dollars per share)	$ 25.9
Proceeds from Issuance of Common Stock	$ 58,275
Legal Fees	$ 55

Note 7 - Earnings Per Share - Summary of Reconciliation of Earnings (Loss) Per Common Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Net loss — basic	$ (10,723)	$ (14,930)	$ (35,386)	$ (47,350)
Weighted average shares outstanding — basic (in shares)	20,217	19,721	20,158	18,877
Basic loss per share (in dollars per share)	$ (0.53)	$ (0.76)	$ (1.76)	$ (2.51)
Weighted average shares outstanding — diluted (in shares)	20,217	19,721	20,158	18,877
Diluted loss per share (in dollars per share)	$ (0.53)	$ (0.76)	$ (1.76)	$ (2.51)

Note 7 - Earnings Per Share - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Common stock equivalents related to stock options that were anti-dilutive and excluded from diluted net income per share (in shares)	237	0	110	0
Higher Than Average Market Price [Member]
Common stock equivalents related to stock options that were anti-dilutive and excluded from diluted net income per share (in shares)	0	51	0	50

Note 8 - Trade Accounts Receivable - Summary of Trade Accounts Receivable (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Trade accounts receivable, current	$ 7,156	$ 5,541
Trade accounts receivable, long-term	12	37
Allowance for doubtful accounts	(114)	(114)
Trade accounts receivable, net	7,054	5,464
Unpaid deferred revenue included in trade accounts receivable	$ 1,964	$ 2,183

Note 8 - Trade Accounts Receivable - Customers Accounted for 10% or More of Trade Accounts Receivable, Net (Details) - Customer Concentration Risk [Member] - Accounts Receivable [Member]	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Company A [Member]
Entity wide revenue major customers percentage	39.00%	55.00%
Company B [Member]
Entity wide revenue major customers percentage	22.00%
Company C [Member]
Entity wide revenue major customers percentage	11.00%

Note 9 - Business Combination (Details Textual) $ / shares in Units, shares in Thousands, $ in Thousands		1 Months Ended		9 Months Ended	12 Months Ended
	Jan. 03, 2022 USD ($) $ / shares shares	Jan. 31, 2023 USD ($) shares	Aug. 31, 2022 USD ($) shares	Sep. 30, 2023 USD ($) $ / shares	Dec. 31, 2022 USD ($)	Dec. 10, 2021 USD ($)
Share Price (in dollars per share) \| $ / shares	$ 40.84			$ 32.49
Goodwill				$ 8,323	$ 8,229
Developed Technology Rights [Member]
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)				5 years
Customer Relationships [Member]
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)				10 years
EVRYTHING [Member]
Financing Receivable, before Allowance for Credit Loss						$ 2,001
EVRYTHING [Member] \| Digimarc Corporation [Member]
Line of Credit Facility, Maximum Borrowing Capacity						$ 2,000
Debt Instrument, Interest Rate, Stated Percentage						1.00%
EVRYTHING [Member]
Business Combination, Consideration Transferred, Total	$ 36,634
Business Combination, Payments for Closing Cost	3,986
Cash Acquired from Acquisition	474
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Indefinite-Lived Intangible Assets	35,720
Goodwill	7,970
Business Combination, Separately Recognized Transactions, Additional Disclosures, Acquisition Costs					$ 447
EVRYTHING [Member] \| Developed Technology Rights [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Indefinite-Lived Intangible Assets	24,170
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)					5 years
EVRYTHING [Member] \| Customer Relationships [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Indefinite-Lived Intangible Assets	$ 11,550
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life (Year)					10 years
EVRYTHING [Member] \| Warrants to Purchase Common Stock [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) \| $ / shares	$ 36.56
EVRYTHING [Member] \| Warrants to Purchase Common Stock [Member] \| Measurement Input, Price Volatility [Member]
Warrants and Rights Outstanding, Measurement Input	0.60
EVRYTHING [Member] \| Common Stock [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) \| shares	772
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable	$ 31,519
EVRYTHING [Member] \| Warrants to Purchase Common Stock [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) \| shares	231
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable	$ 1,601
EVRYTHING [Member] \| Common Stock Original Held for Post Closing Adjustments [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in shares) \| shares		10	22
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable		$ 428	$ 872

Note 9 - Business Combination - Purchase Price Allocation (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022	Jan. 03, 2022
Goodwill	$ 8,323	$ 8,229
EVRYTHING [Member]
Trade accounts receivable, net			$ 762
Other current assets			2,178
Property and equipment, net			99
Lease right of use assets and other long-term assets			484
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Indefinite-Lived Intangible Assets			35,720
Goodwill			7,970
Accounts payable and other accrued liabilities			(5,395)
Deferred revenue			(1,678)
Loan payable to related party			(2,001)
Lease liability and other long-term liabilities			(205)
Total purchase price			$ 37,934

Note 9 - Business Combination - Pro Forma Results (Details) - EVRYTHING [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Revenue	$ 8,994	$ 7,821	$ 25,567	$ 22,979
Net loss	$ (10,723)	$ (14,930)	$ (35,386)	$ (46,903)
Basic (in dollars per share)	$ (0.53)	$ (0.76)	$ (1.76)	$ (2.54)
Diluted (in dollars per share)	$ (0.53)	$ (0.76)	$ (1.76)	$ (2.54)

Note 10 - Property and Equipment (Details Textual)	Sep. 30, 2023
Minimum [Member]
Property, Plant and Equipment, Useful Life (Year)	2 years
Maximum [Member]
Property, Plant and Equipment, Useful Life (Year)	10 years

Note 10 - Property and Equipment - Depreciation and Amortization On Property and Equipment Using the Straight-line Method (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Office furniture and fixtures	$ 1,435	$ 1,613
Software	5,483	5,747
Equipment	2,523	4,785
Leasehold improvements	1,858	1,861
Gross property and equipment	11,299	14,006
Less accumulated depreciation	(9,643)	(11,616)
Property and equipment, net	$ 1,656	$ 2,390

Note 11 - Goodwill (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Goodwill, Impairment Loss	$ 0	$ 0

Note 11 - Goodwill - Summary of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Balance	$ 8,229
Currency translation adjustments	94
Balance	$ 8,323

Note 12 - Intangibles (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Impairment of Intangible Assets (Excluding Goodwill)	$ 0	$ 0

Note 12 - Intangibles - Amortization of Intangible Assets Acquired (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Intangibles, gross	$ 41,863
Accumulated amortization	(12,886)
Intangibles, net	$ 28,977
Maximum [Member]
Intangibles, gross		$ 42,908
Accumulated amortization		(9,738)
Intangibles, net		33,170
Patents [Member]
Estimated useful life (Year)	17 years
Intangibles, gross	$ 9,291
Patents [Member] \| Maximum [Member]
Intangibles, gross		10,646
Intellectual Property [Member]
Estimated useful life (Year)	10 years
Intangibles, gross	$ 250
Intellectual Property [Member] \| Maximum [Member]
Intangibles, gross		250
Developed Technology Rights [Member]
Estimated useful life (Year)	5 years
Intangibles, gross	$ 21,871
Developed Technology Rights [Member] \| Maximum [Member]
Intangibles, gross		21,661
Customer Relationships [Member]
Estimated useful life (Year)	10 years
Intangibles, gross	$ 10,451
Customer Relationships [Member] \| Maximum [Member]
Intangibles, gross		$ 10,351

Note 12 - Intangibles - Amortization Expense on Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Amortization expense	$ 1,550	$ 1,496	$ 4,579	$ 4,756

Note 12 - Intangibles - Estimated Future Aggregate Amortization Expense (Details) $ in Thousands	Sep. 30, 2023 USD ($)
Remaining in 2023	$ 1,492
2024	5,967
2025	5,946
2026	5,913
2027	$ 1,504

Note 13 - Leases (Details Textual) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended			9 Months Ended
Note 13 - Leases (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2022	Sep. 30, 2023	Jun. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Lessee, Operating Lease, Liability, to be Paid		$ 9,226			$ 9,226
Operating Lease, Impairment Loss		0		$ 0	250	$ 574
Former Corporate Office in Beaverton, Oregon [Member]
Lessee, Operating Lease, Liability, to be Paid		435			435
Operating Lease, Impairment Loss	$ 574		$ 250
Corporate Office in Beaverton, Oregon [Member]
Lessee, Operating Lease, Liability, to be Paid		8,756			8,756
Office Space in London, England [Member]
Lessee, Operating Lease, Liability, to be Paid		$ 0			$ 0

Note 13 - Leases - Additional Details of Leases Presented in Consolidated Balance Sheets (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Lease right of use assets	$ 4,108	$ 4,720
Lease liabilities, long-term	$ 6,170	$ 5,977
Weighted-average remaining life (in years) (Year)	6 years 7 months 6 days	6 years 8 months 12 days
Weighted-average discount rate	9.00%	9.00%
Accounts Payable and Other Accrued Liabilities [Member]
Lease liabilities, current	$ 468	$ 939

Note 13 - Leases - Additional Details of Operating Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Operating lease expense	$ 347	$ 498	$ 1,189	$ 1,422
Cash paid for operating leases	$ 260	$ 395	$ 909	$ 1,185

Note 13 - Leases - Reconciliation of Undiscounted Cash Payment Obligations of Operating Lease Liability (Details) $ in Thousands	Sep. 30, 2023 USD ($)
Remaining in 2023	$ 219
2024	1,186
2025	1,317
2026	1,356
2027	1,397
Thereafter	3,751
Total lease payments	9,226
Imputed interest	(2,588)
Total minimum lease payments	$ 6,638

Note 14 - Other Income - Other Income, Net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Interest income	$ 423	$ 249	$ 1,283	$ 340
Refundable tax credit	120	376	526	878
Foreign currency gains (losses)	(65)	(6)	58	(19)
Other income	0	4	3	15
Total other income, net	$ 478	$ 623	$ 1,870	$ 1,214

Note 15 - Income Taxes (Details Textual) - USD ($) Pure in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Effective Income Tax Rate Reconciliation, Percent			0.00%	0.00%
Deferred Tax Assets, Valuation Allowance	$ 92,888		$ 92,888		$ 83,000
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount			9,888
Effective Income Tax Rate Reconciliation, Excess Tax Deficiencies, Amount	436	$ 2,355	803	$ 3,170
Valuation Allowance to Offset Excess Tax Deficiencies [Member]
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	$ 436	$ 2,355	$ 803	$ 3,170