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

Thanks. Good afternoon, everyone. Welcome to our conference call. Charles Beck, our CFO is with me. On the call today, we'll review Q4 and full year 2014 financial results and the outlook for 2015. We'll discuss significant business developments and market conditions, and provide an update on execution of strategy. This webcast will be archived in the Investor Relations section of our website. Please note that during the course of the call we will be making certain forward-looking statements, including those regarding revenue recognition matters, results of operations, investments, initiatives, and growth strategies. These statements are subject to many assumptions, risks, uncertainties and changes in circumstances. Any assumptions as we share about future performance represent a point-in-time estimate. Actual results may vary materially from those expressed or implied by such statements. We expressly disclaim any obligation to revise or update any assumptions, projections, or other forward-looking statements to reflect events or circumstances that may arise after the date of this call. For more information about risk factors that may cause actual results to differ from expectations, please see the company's filings with the SEC, including our latest Form 10-K we expect to file shortly. Charles will begin by commenting on our Q4 and 2014 financial results and 2015 outlook. I'll then discuss significant business developments, market conditions and execution of strategy. Charles?

Thanks, Bruce. Good afternoon, everyone. Revenue for the quarter was $5.9 million, down $1 million or 14% from the fourth quarter of last year. Licensing revenue was down $1.7 million, largely due to the scheduled completion of the quarterly license fee payments from Nielsen and lower reported royalties from another licensee. Service and subscription revenues were up $700,000 or 18% year-over-year, largely due to higher Discover and Guardian revenue. Gross margin was 62% for the quarter, 9 points lower than the fourth quarter of 2013, reflecting the impact of lower license revenue. Operating expenses decreased by $400,000 or 4%, reflecting lower legal expenses, due to the completion of the licensing audit with intellectual ventures in January of 2014. We incurred an operating loss of $4.2 million during the quarter versus an operating loss of $3.4 million in the fourth quarter of 2013. At the bottomline, we incurred a net loss for the quarter of $9.2 million or $1.23 per diluted share versus a net loss of $1.3 million or $0.19 per diluted share in the same quarter last year. The net loss for the quarter included a $6.8 million non-cash income tax charge to record a full valuation allowance against our deferred tax assets. The primary trigger for this charge according to U.S. accounting rules is three years of cumulative loss. The rationale for our operating loss is well understood. Recording the valuation allowance does not mean that we lose the right to use these assets in the future. Reinstatement of these tax assets would occur upon returning to profitable operations. Excluding this non-cash charge, net income would have been $2.4 million or $0.32 per diluted share. We raised over $16 million during the quarter under our at-the-market offering, at an average sales price of $24 per share. We invested…

Thanks, Charles. At this time last year we had just returned from the launch of Digimarc Barcode at NRF, and noted that planning was underway with a retailer protesting. The retailer was Wegmans. By the end of the year, we were in production, with enabled products in all 85 of their stores. We expected first shipment of Digimarc-enabled retail scanners in Q2, which happened on schedule. We have begun work on our labor cost savings model that we published in May. Another area of business we thought that subscription and service revenues will grow, to help offset some of the decline in license revenue, and they did grow modestly. We contemplated additional digital watermarking to Guardian for e-books, which we delivered. Our relationship with the Central Banks continues the pace. The two areas that were somewhat disappointing were IT licensing and mobile payments. As I've noted in numerous prior statements during 2014, the IT licensing market is in the doldrums. We have responded by temporarily reducing our investments in this area and developing and pursuing creative approaches to leveraging our IP that are less sensitive to these market conditions. Our R&D and mobile payments, although not bearing fruit directly with the intended application, is proving valuable as an important enabler of digital driver licenses, as two states announced their intention to introduce such licenses in 2016 through our partner MorphoTrust. We made great progress in the execution of strategy for our key growth initiative in '14, as evidenced by numerous announcements at the 2015 NRF concerning customers and channel partners, disclosing Wegmans as our first retailer customer and Smithfield Foods as our first consumer products customer. We introduced an impressive roster of channel partners, including SGS and Shazam, as key enablers of our platform. We have made and continue to…

[Operator Instructions] Your first question comes from the line of Rob Stone.

I have a few questions. My first one is for Bruce. On the outlook for Barcode, you've signed up a flagship customer and I assume you're rolling out some products with them on a continuous basis. What else should we be looking forward to in terms of tracking the progress of this initiative between now and the next other half?

We are focused on adding more customers. That's the name of the game in '15. So we've beefed-up our sales staff. We are working on equipping the sales organization of our channel partners. We are in negotiations to add more channel partners. And we continue to work on the web interface, which is important to globalization. So all of our focus is on the sales interface right now and on getting more customers. And so what you should see during the year, I believe, is more customers. That's really the key measure of progress that I would suggest for everyone.

So is that to imply that there isn't any other technical or organizational hurdle, something that you need to set up in order to close deals is just a matter of closing them?

Well, during 2014, one of the virtues that I saw and having a narrow focus that was not trying to get started with a lot of customers. It was to build the delivery mechanism. And so our focus was on friction in the sales and delivery processes. And so we had a new organization, our professional services organization, we had to get them in place and get trained them, and get productive. We found contract negotiations could slow things down, and so now we have two channel partners, who have existing contracts with important people; SGS, who is a leading supplier to most of the brands, including retail private brands that we're interested in; and Shazam, that has a very large sales force and engagement model with many other potential customers. And then to the extent anyone is concerned about quality of impact of what we do, we see SGS as a great assurance to them, as one of the leading suppliers in the world, the quality assurance with respect to print output from digital files, such as those used in package and labels. And our sales force was forming over the last couple of years and we have now beefed-up significantly with two gentleman who have decades of experience in selling technology to retail. And so my focus in 2014 was on trying to understand what we needed to do to reduce friction in the selling process. And then in 2015 it's about beefing up the sales interface to bring the customers home. So we think we're ready with the basic technology platform. It is competent to perform on the functions that we have been promising. We continue to do R&D for sure, but we think we're ready to go, and we want to get as many customers as we can into the process here in the next year.

A couple of housekeeping questions for Charles, if I may. One, I noticed deferred revenue was up by $1.8 million sequentially, any color you can provide there?

I don't think there is anything really specific there that's actually -- you're referring to versus Q3, sorry. Yes, we do have a customer that we have free billing that we do in Q4. Although we get paid for in Q1, and as we free bill that that sits in deferred revenue until that cash comes in. And then the related revenue is recognized over the year long period. That's the majority of the increase.

And is the increasing days sales outstanding tied into that in some way or is there's something else behind that?

I mean that would factor some into the calculation. There isn't anything else there though that's alarming or noteworthy.

And finally, you mentioned I think in the outlook for this year that you expect operating expenses to be a little bit lower. Can you give us any sense of how that looks on a quarterly basis? Does that mean, it should be trending down over time or is it just going to be running at generally about the same rate each quarter, but at lower rate than last year?

Generally a little bit lower each quarter.

Our next question comes from the line of Saliq Khan with Imperial Capital.

I'm also speaking on behalf of Jeff Kessler. Couple of questions, we have for you. Certainly, as you look at the relationship that you have with Wegmans is very much so key for you guys, given the fact that these guys are very much influential with the rest of the retailing industry, and in terms of size, a very manageable size as well. Any updates that you can give us aside from the competition that we had during NRF with how the relationship is going so far with Wegmans?

Yes, it's a terrific relationship. We had a very unusual circumstances at the show having a senior representative from Wegmans in our booth, I think it's a nearly unprecedented to have a customer willing to come in and represent a supplier. And they were obviously very happy with the quality of service that we provided to them and willing to talk to other retailers about that experience. So it was a very, very helpful addition to our booth to have their representative present. And so the goal now is to proliferate the technology within the Wegmans brand. And so we're working hard with them to do that, not only in packaging, but everywhere in their stores, demonstrating the full potential of Digimarc Discover platform to facilitate and increasing profits and customer satisfaction from retailers.

Bruce, one of the things that you've mentioned previously is that you needed that customer to help you validate the economic model that Digimarc provides for the likes of these guys. Any comment on when we can start seeing more concrete numbers?

No. We're going as fast as we can, and so I'm working on few things that aren't quite right for general discussion here. But one of the things I would love to be able to do is to get persuasive proof to the industry of the value proposition, so that we don't have to prove it over and over again. There is a normal process that these retailers want to follow-up for technology acquisition, which involves proof-of-concept. I'm hoping at some point here, in my system priorities ASAP that we can get over that hurdle. So as I've said last year, I don't think I've changed my view very much. I don't know whether it's one, two or three customers, but I don't think it's the large number that we have to get pass before we made our point. And so that was part of the unique value that Wegmans representation and the booth brought was they came with information, they didn't share it with financial interest, of course, but they did share their early experience with other retailers. So it was very, very helpful. But if we have two of those or three of those, I don't know what the magic number is, at some point in time I would expect that the retailers will go, yes, we're not learning anything new from new proof-of-concept test, let's just keep going. And so that's one of our goals this year. Obviously, we can't promise to be successful on, but we are focused on and trying to deliver.

One thing is, I'm not sure if the others understand that you guys are working with Walmart for some of their circulars that are out there right now, with the Digimarc Discover technology. What is your thought process or some sort of timeline, if you're able to put a timeline on it, or at least give us some more color regarding the probability that they could be taking on Discover platform as well?

Well, our offer to all brands is the entire platform. And we are somewhat indifferent to where they'd begin as long as they begin. Walmart has chosen in terms of public disclosure that particular aspect of the platform. So our focus is on making them very successful with that. That particular application has very broad industry relevant, as you know. Even though newspapers have suffered mildly over the last decade in reduced subscription, they still are carrying with them on Sunday, probably couple of hundred pages of retail advertising that we could improve the productivity for. And so Walmart being the beacon that they are of excellence in retail could be a proof-point that would cause others to embrace the technology for that particular aspect of the platform and that will be a wonderful thing. So we're entirely focused on making those guys successful. That's really what we're doing with respect to the circulars.

And the last question is, what do you need to be doing essentially to get the likes of Dolby that builds your capabilities into their product.

I think the answer to that is scale. And that's why I am obsessively focused on that in terms of this year's objective. So we need to demonstrate scale to all of our channel partners. Dolby being one of the missing elements right now, and so I want to prove our value to them. And the way to do that is through getting more customers.

And our next question comes from the line of Josh Nichols with B. Riley.

Couple of questions, real quick. Just looking at Wegmans, assuming that they're going to go to full adoption, at least for their private label, how long do you think that that ramp up would actually take?

That's up to the customer. There're two basic models that described and we're okay with either. And I'll give you my sort of theory about the two models, and how they will be embraced over time. So the two models are, whenever I'm changing my package for any other reason or designing a new package, I'll throw it to mark in. That's the most efficient model in terms of total cost of ownership. The other model is, let's get it all done right away, and that involves some incremental expense for program management and for what it known as, fleet changes. I believe that the industry will vacillate between the two models early, that is they'll get a chunk of product they want to get going, so they can do more extended, if you like, proof-of-concept and to have more experience with real product and distribution. And then they'll make a judgment to go one way or the other, and I'm not sure all of them will go one way or the other. But I think that if the value proposition described in the white paper on our website is validated through statistical evidence, that just about everybody ought to go and they expedite there up, because they would make more money by going faster. But I think that that will not happen until that proof has been established. And obviously, the adequacy of the proof is subjective, it depends on how the customers feel about it. So I don't know when that happens or how it happens, but I suspect it will happen. In the meantime, we'll probably see a little bit of both model being embraced early on.

And then given that Smithfield join, I know originally kind of the thought process was at well, a lot of private label brands will join and then now ultimately cascade to major consumer brands as well as other than on Discover platform. Are you seeing any shift in that where you might able to pick up some good private label brands as well as some named brands as well in the near future?

There is a lot of stuff going on. And I would characterize it as kind of a healthy environment. The awareness of this is increasing. And so we continue to believe that the most efficient leverage for us comes from focusing on the major retailers and their private brands, and their general marketing. But we've got ongoing communication on a number of leading advertising agencies. A number of brands are exploring our technology. And so again, our focus is on the retailers and their brands, but our reach, if you like, both direct and through channel partners extents far beyond. So according to our model here, where the delivery can occur through the web, through our direct sales efforts, or through our channel partners, we would expect that build, each of those then used will bear fruit in somewhat unpredictable ways and aggregate into this momentum is the goal for our resource allocations during the 2015. So I don't know who will be next or where they will come from or whatever, we've got lots of irons in the fires so to speak, and I hope that they all bear fruit of course.

And then regarding the Shazam partnership, so they used a lot of audio, fingerprinting and things, but they have such huge user base, 500 million or whatever downloads at this. But are they using digital watermarks now? Or if not how long do you think that will take until those are enabled on the Shazam platform and to what extent do you see it ramping up?

We're developing our product plans with them and our marketing and sales materials along with that. I don't think we're ready to pick a date just yet, but we're kind to go as quick as we can, and I'm hopeful that, we'll have them enabled by the middle of the year, and that's a reasonable goal at this point, although it's not a promise.

And then lastly, just looking at the subscription revenue, sequentially it was up nice, I know like $400,000 or something. Would I be wrong to assume that the bulk of that is probably from the Discover platform overall or were there a lot of Guardian upgrades too, it was a good quarter for Guardian, possibly that also affected that.

It's a healthy mix of both.

And your next question comes from the line of Glenn Mattson with Ladenburg Thalmann.

I think just about everything has been hit already. One question still remaining, I guess somewhat of an ancillary detail, but interesting. Is the R&D program, with what I believe a top-five retailer, has that kicked in this year? And are you happy with how that's going so far?

It's chugging along, I would say, Glenn. I don't believe it's going to go quickly, because of the size and nature of the firm. But they seem as committed as ever to making it happen, so we're trying our best to support them, but it's a slow process.

Your next question comes from the line on [ph] Bill Gibson with ROTH Capital Partners.

I've got one follow-up question on mobile payment. You introduced the software at show or the development kit, what kind of feedback did you get? And where do we go from here?

Well, we got very positive feedback, but we haven't been able to translate that into program with sustainable economic model, that's the hang up. And that's why when we were doing the work and going to the show I was as tentative as I was, not because I didn't believe in our technology, but I did believe in the complexity and power relations that riddle of the payments industry. So we saw and figured up the magic formula to get keep going in that space. But what's happened in the meantime was that the R&D that we did for payments has proved to be fundamental to the digital driver license initiative that is beginning to show some signs of significance with Iowa and Delaware announcing that they want to introduced digital licenses in 2016. So it may all work out in the end, not in the way we expected, but in way that yields a good profit off of the R&D.

Our next question comes from Kevin Hanrahan with KMH Capital Advisors.

Just had a quick comment. I remember when I used to be a lot lonely around these calls, so I'm happy that there is a lot of analyst interested in Digimarc. I had a question from for Mr. Beck. Did you buyback any shares in the fourth quarter?

We did not buyback any shares in the open market. We did buyback about 17,000 shares for $460,000 under our employee stock plan, part of our routine process.

And the ATM, the bulk of that was the transaction with Senvest, the company from Montreal, and then a little bit more that happened during the quarter. Am I in the ballpark on those?

Correct. Yes, about 90%, 95% of that was RIMA Senvest.

So basically you're saying you got enough cash for now, and you probably won't have to ATM in the short run?

That's fair. Not saying there are going to be strategic reasons to raise capital in the future, but that's kind of the plan.

So something would have to popup, where you see an attractive acquisition or something along those lines in order for that to happen, what you were just talking about.

Those sorts of things, yes, I would potentially interest us in wanting to raise additional capital, if they come about.

We have a follow-up from Glenn Mattson.

One more thing I was just thinking. This being the first quarter with Wegmans, was there a pent-up kind of level of product labels that either be converted or is this kind of a rate at which they kind of want to go at every quarter going forward and whether or not there was kind of a surge in Q4?

I'm reluctant to get into the details of individual customer implementation, because it's more of their business than ours, given that the relationships, the contracts are not financially immaterial. I don't want to spend a lot of time talking about how they are running their business, because they're a private company. And that will be true, generally speaking, of any of our clients, they're all quite sensitive about us being a small public company and sort of going around, chatting about how their business is going. So we probably won't want to talk about that level of detail regarding any of our customers. It will get disclosed, if at all, through them or because they're financially immaterial. I think those would be the two ways in which there would be some disclosure.

At this time, this does conclude our question-and-answer session. I would now like to turn the call back over to Bruce Davis. Sir, please proceed. End of Q&A

Thanks everyone for your continued support. We look forward to talking to you again in the quarter. That's it for today. Thank you very much.