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

Thanks. Good afternoon. Welcome to our conference call. Charles Beck, our CFO, is with me. On the call today, we’ll review Q2 financial results, discuss significant business developments and market conditions and provide an update on execution of strategy. We’ll archive this webcast in the Investor Relations section of the website. Please note that during the course of this call, we’ll be making certain forward-looking statements, including those regarding revenue recognition matters, results of operations, investments, initiatives, perspectives on business partners, customers, prospects, industry trends and growth strategies. We’ll also, from time to time, discuss information provided to us by channel partners and actual and potential customers about their business activities. We are providing this information as we understand it was represented to us. We do not verify nor vouch for such information. Such forward-looking statements and the statements about partners and customers are subject to many assumptions, risks, uncertainties and changes in circumstances. Any assumptions 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 this conference 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 the Form 10-Q that we expect to file shortly. Charles will begin by commenting on our financial results. I will then discuss significant business developments, market conditions and execution of strategy. Charles?

Thanks, Bruce. Good afternoon, everyone. Revenue for the quarter was $5.4 million, down $200,000 from the second quarter of last year due to lower license revenue. License revenue was lower year-over-year, reflecting the impact of the fully paid up license we entered into in the third quarter of last year. Foreign exchange for $3.5 million license fee, we waived any future royalty obligations from this licensees in one of the licensed fields of use. Service revenue was essentially flat. The effects of growth in Digimarc Barcode revenue were largely offset by decline in Digimarc Guardian revenue. In regard to revenue composition, we expect service revenue to continue to grow in the single digits but vary quarter-to-quarter based on timing of when services are performed. License revenue should remain relatively flat though with some variability quarter-to-quarter. We anticipate Guardian revenue to be flat to slightly down as we have minimized our investments in that area of our business. And for Barcode revenue to grow as bookings grow. Digimarc Discover and Barcode bookings were $200,000 during the quarter versus $100,000 in Q2 last year. We expect lumpiness in quarterly bookings in early stages of market development due to timing and varying provisions affecting bookings. Gross margin for the quarter was 59%, down 3 points from last year, reflecting the impact of lower license revenue. Operating expenses were $1 million higher than the second quarter of last year, due to increased staffing in sales, marketing and operations to enhance our ability to deliver the benefits of Digimarc Barcode to retailers and brands. Net loss for the second quarter was $8 million or $0.71 per diluted share versus a net loss of $6.9 million or $0.68 per diluted share in the same quarter last year. We invested $6.9 million of working capital during Q2, which was slightly lower than the low end of the range we provided on our last call. We used $6.2 million to fund operations and $400,000 for capital expenditures. We ended the quarter with $56.8 million in cash and marketable securities. We anticipate cash usage will be between $7 million to $8 million in the third quarter. Our projected cash usage for Q3 is higher than Q2 reflecting differences in the timing of customer collections and vendor disbursements. We intend to hold around the same level of operating expense we invested in Q2 until we see sustainable uptick in the topline. We believe that we have sufficient resources supporting identified programs for specific customers to drive near-term revenue growth. We are focusing resources on these opportunities. There are many factors affecting the timing of revenue growth. We are doing all we can to shorten the critical path. For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that we expect to file shortly. Bruce will provide his comments on significant business developments, market conditions and execution of strategy.

Thanks, Charles. I noted on our last call that we have contracts with two of the top five largest retailers and one of the top five largest CPG’s in the world. And now we’re working with these companies to scale their use of our platform in terms of volume and breadth of applications. We expect to success to serve as a tipping point for the industry, accelerating the pace of adoption more generally. Our near-term financial performance will be heavily influenced by the pace and outcome of pending contract negotiations with certain customers and prospects. The cash flow assumptions, that Charles mentioned, do not include the effects of successful completion of these negotiations. We are not only emphasizing discipline at the level of spending in the meantime, we are continuing operations to improve – efforts to improve our operational effectiveness particularly in the comp management and delivery. Our current focus is on facilitating enterprise business transformation in large format grocery and general merchandise and in the warehouse club channel. We offer the opportunity to benefit from many enhancements in store operations and shopper engagement via our Intuitive Computing Platform. Enhancement of media with Digimarc Barcode lies at the foundation of this platform. We are expanding the enhanced media footprint with major key customers lighting up relevant auto ID interfaces and developing or supporting basic applications. Key areas of focus include packaging, thermal labels on fresh products, hang tags on apparel, shelf labels, print catalogs and retail ready packs and other in-store materials. Lately, spurred by customer interest, we have begun exploration of enhancement of shipping labels. Scanner vendor participation is expanding in the number of scope to provide reliable and efficient discovery of the Digimarc Barcode and media in support of that neutral portfolio of applications aimed at improving store…

Thank you, sir. [Operator Instructions] Our first question comes from Rob Stone. Please proceed.

Couple of things, Bruce. One is, if I’m remembering correctly from the last call, I think there were two or three pilots going on with thermal labels and I was just wondering, you mentioned thermal labels in context of comments about a couple of customers just for what is the status of going from pilots to implementation on thermal.

Yes. So without getting specific about accounts we have full deployment in some stores one of the smaller retailers. And we are anticipating moving beyond pilot with larger retailers. And so far, at [indiscernible], we are working fine. It takes some time to get the printers all enabled for firmware because there are wide range of printers and versions of printers and stores. And so we’ve been sorting out that process since the last call.

Okay. I think you were also planning once Wegmans was step-up with thermal labels and had more of their planned rollout of packaged sewer branded items in the store on shelves to do a third party test which would help you validate the concept for other potential customers. Any comment on how that might be progressing?

Yes. We were planning to do some ROI studies soon. But I don’t have permission, in order to –can I provide any sort of assurance that will be any public disclosure of the results. So we’re doing the test for us and for them. And obviously, for us to make any public disclosures, we would need their permission. And the balance of incentives and business incentives for them to make the disclosure and since that I can’t predict the outcome. So it’s really up to them whether they wanted same thing or not.

All right. A final question and I’ll jump back in the queue. So you mentioned that you had one large CPG that’s under contract and you’re talking to others and sounds like, in collaboration with or maybe at the behest of one of the large retailer customers, you’re getting more CPG products enabled this year. And I – the first thing was I didn’t quite catch the sequence and the scale, if you could repeat that. But the heart of my question really is, from what angle if you’re able to provide any more color is the retailer and the CPG partners, are they approaching this? Is it something like we want you guys to do this and we’re going to save money and check out but will help you with engagement or will give you an in cap or sort of a handful of CPG products. I’m just curious about what the use cases? Why the retailers wanting to collaborate with them at this stage?

Yes, complicated question. I’ll give you – I’ll do my best to give you a little bit answer to Rob. So we announced previously that we have a multiyear contract with a large CPG. And that I mentioned in this call that we’re negotiating with another one for a similar kind of arrangement. And then, we have a growing number of CPG’s who are doing business with us on a more ad hoc basis, that is that they’re not yet negotiating multiyear large agreements in terms of scope. So beginning first with where we have contract, the interest there ranges from improving their manufacturing processes to consumer engagement. And we have under CPG’s are interested in the same portfolio of applications. Those that are focusing on retailer relations right now are looking for opportunities to begin to demonstrate merchandising capabilities, improve the consumer experiences and easier check out at retail, so that was slightly different portfolio of applications. With respect to the – those who are interested in consumer engagement, one of the reasons that I mentioned increasing our efforts to move the smartphone market forward is that the industry has been signing by the lack of the application that they are willing to support for interaction with their customers and prospects, no one yet has cracked the nut on that. So it’s not really a question about Digimarc Barcode is a data carrier, it’s really a question about how the industry is able to engage with their consumers are all having to be this disintermediated by someone like Amazon or Google or even Walmart. All right, so they like to be able to communicate directly if they can in those circumstances. That opportunity will only arise, I believe, based on all the observations over the last several years, when auto identification is a routine feature of smartphones. So I think, they needed desperately and we’re going to be more vocal and more helpful in trying to get the smartphone guys to move there more quickly. So that’s how all those things come in together. So as everyone on the call, I think – that the independent product suppliers participation in the program brings incremental benefits to the retailers. So if the retailers is good for them when their suppliers get involved because suppliers see lots of opportunities for benefits from the platform. In addition to making their retail trading partners happy. And so we see a range here participation across the number of applications all of which are consistent with our strategy.

So is it possible for security around this concept of consumer engagement and merchandising? That that might result in making these activities a little more visible? If a big CPG in a major retailer doing some kind of a program, to try and stir up consumer excitement about this stuff and using the application I would think they have to promote that, so the consumers would be aware of that? Am I barking of the wrong tree or not?

No, no, no. You’re spot on to, I’ll call, my ambition. I wish I could say, I know I can deliver, but earlier in the year, I said that those a year in which without necessarily the formality of press release that things become more obvious. I feel really about there is a reasonable chance that’s going to occur and it would be along the lines of what you just outlined. No matter is that, some of this stuff is inherently public. And so as these activities percolate up, what’s going on will become more obvious to everyone. And then of course, whatever I can, where I sense that there is a need to level of playing field, I’ll amplify the public disclosures and communication vehicles at quarterly call. But there’s a lot of stuff going on. I just can’t – I’m not allowed to talk about, because of the confidentiality restrictions I have on my disclosures, but that will all go away once things get into the public view.

That’s great. I’ll yield before to the next person in the queue.

Thank you, Rob.

Your next question comes from Marc Weisenburger.

Thank you very much. You mentioned that there are some handouts in terms of the supply chain and logistics. Can you talk about some of the specifics that are roadblocks? And how you are working with the different parties to expedite the process?

I think you may have misinterpreted something I’ve said. I don’t think I’ve said something about hangouts with logistics more that there are opportunities emerging logistics.

Sure. Can you talk about how you’re helping to facilitate those opportunities along the – that supply chain then?

Yes. Yes, so we’ve been asked by some entities to take a look at how we might be able to help out and we’ll just fix it. So beginning with the shipping aspects of logistics, there is a quite high non-read, miss read rate at the receiving facilities of all shippers. And we actually went to a few places and talked to a few folks. And I won’t share anybody’s numbers, but the numbers were quite startlingly high across the number of different shipping channels. And that’s because the labels tend to get misapplied or damaged in shipment. And so that then leads to a human intervention, a sidetracking of the processing of the packages that move at extremely high speeds, well, when the labels are usually read. So it’s pretty clear towards that we can make the labels more reliably and more efficiently read. There are a lot of open questions about how this is supply and logistics, and so I don’t want to take time on this call to go into that, because this is not core to our strategy right now. But we are being asked to look into it and we are willing to looking to look into it if we are paid to do so. So we’re being quite clear that we’re not going to get distracted from our core strategy by opportunities there. But it will help us to grow revenues sooner instead later than we’d be happy to talk. So we’ve done initial studies. We understand the situation. We believe we can help and now we need to find sponsors. So we’ll see how that goes. There’s also an ambition overtime to reduce or eliminate labels consistent with sort of vision piece we did at and around 2018. And that’s a much larger…

Great, Thank you. You also mentioned about the network effects of across the platforms and you’re wanting to kind of foster the community of developers. Can you elaborate on that?

Yes. We’ve been building some initial applications to prime the pump, that’s – our business model is to focus our energy on improving Digimarc Barcode. And so we’ve build Digimarc Discover so that we have the software that would identify the enhanced media. We’re happy to license that to anybody who wants to use it. And then, the conjunction of the enhanced media the discovery software creates opportunity for applications. We have not commented that we would be a substantial application developer, we want to build the community to do that. So that we can remain focused on the core R&D of replacing conventional data carriers with Digimarc Barcode and receiving lots of income from the application developers on the clients for these platforms. So it’s really – it’s most akin to an operating system model. And if you think back on the evolution of PC operating systems, you’d see an analogous experience where the operating system companies built a few of the early applications in order to prime the pump. So we’re following a path that’s quite similar to that.

Great. And one final one from me. Are you seeing any interest for – in categories that you wouldn’t expect beyond kind of the private label stuff that maybe is kind of coming up and could be the next interesting opportunity to expand the platform?

Nothing that we wouldn’t expect because we expect broad relevance of the platform, but lots of things that could distract us if we let them, but we won’t. So we are very focused on highest and best use of our working capital to address the strategy that we told you all, that we we’re focused on. So we’re going to do something we would do with the capital that we’ve raised from the financial markets. And then, later on, when we have demonstrated success in that target product market, there is a wide ranging opportunity beyond that.

Understood. Thank you.

Yes.

Your next question comes from Ilya Grozovsky.

Thanks. It’s Ilya. Wanted to just ask you guys about the margin in the subscription business. Just kind of how do you see that going forward? It’s been balanced around for the last six quarters or so?

Yes. We expect long-term that the margin of subscription business would be quite significant. Right now, we kind of have a mix of Guardian revenue and Barcode revenue. And the Guardian revenue is a 50% to 60% margin type business as the concentration of that’s higher obviously there are some implications in our margins. Barcode business really the license component of its basically 100% margin. What can impact margins there though it is that we do provide some services and those services are generally hidden kind of mid-50% margins. So it really comes down to mix of those components. But at Barcode license revenue becomes a much larger component of that line item we would expect that margins would start to rise quite nicely.

Okay, thank you.

Your next question comes from Jeff Bernstein.

Hey Bruce, just was looking for a little bit more detail about the improved smartphone experience and sort of what needs to happen to get there? Are we talking about basically having the auto ID without pushing the button to take a picture? And that sounds like kind of an operating system of a phone issue. And so is it Android and iOS that have to be targeted or – just going into that a little bit.

Sure. So I’ll put together a few threads here, Jeff. The first is, in talking to our CPG customers, they all desperately want consumer engagement, they can’t figure out how to do it. And that’s one of the key value propositions for them of having enhanced auto identification capability and the pack design itself. So we all wanted to happen and one of the benefits of the Microsoft partnership is that we’ve shown as a technical matter that we can be embedded deep within the operating system of mobile devices. The Microsoft implementation is at a stage where it’s meant to facilitate developer work. So it’s not surfaced as an auto ID feature as a routine function or even those enterprise mobile devices to date. So we would like to move Microsoft to that. But having demonstrated our capability to do such things, we like iOS and Android to come along in the consumer space. And so I think what we’ve proven is that the only reason that’s not happening is priorities of the development resources of those companies. And so we're trying our best to full some from advocacy here. And that will give them to move us up in the priorities of their developers. And so you can expect us to become more vocal in the coming months, and more instructive about how to get things done in that regard and hopefully, it will be able to list some significant resources to support our efforts. But as we saw the Apple results this week, cell phones sales are flat and where Apple is making those money is growth and services. Well, auto ID would get rise to a whole new class of services and make consumers really much happier with their devices and provide get deal of utility to them and to the companies that they want to buy products from. So we're going to really up level that activity to the best of our ability during the remainder of the year to see if we can expedite that technical development for everybody's benefit. And it just seems unnatural that in a world in which the leaders of those companies are talking about augmented reality, that they're not allowing this foundational element of identification to think to be augmented, to be optimized. It just seems like they have to do it. And so I don't know that we have been sufficiently advocating that. So we’re going to do better job as the year moves on here and doing that. And we will see what happens, I can't promise on anything, but we're going to – we’re in the top level of our advocacy.

Great. And just a quick follow-up. I think, you mentioned a list of sort of expanding media coverage for Digimarc Barcode. And I think you mentioned print catalogs and something about some retail ready packs and could you just explain that the things we haven't talked about extensively before hang tags and thermal labels and shelf tags.

Sure. So first with the respect to mention catalogs, I should probably say, our catalogs and circulars, so there are – this goes also to the notion of creating more efficient consumer experience in shopping. But we done a little bit of experimentation in the magazine business as you know there's a continuing use in that field. But the question really once again, about what’s the app? There are hundreds of billions of pages of catalogs and circulars, advertising products produced annually in the U.S. alone. And none of them allow for automatic ordering of any other that they’re selling and so for relatively low cost or any of the sponsors of those activities could add that our identification capability. And so we have some interest that's been expressed in a – make a moving down that path. I think, it’s a terrific idea and again, natural evolution of our society and economy to go in that direction. The Shelf-edge, shelf labels, as I said, it has great benefit for store operations, but can also be used by consumers as we await the proliferation of Digimarc Barcode and packages themselves. Well, some large from that retailers are promoting, what they call shelf ready packs and that’s a shipper carton that has some proliferations, where the carton is basically opened and put on the shelf. It simples the stocking process and it creates a merchandising vehicle around the products if you like. And so Digimarc enhancing the – those shipping packs, we can have an impact on the supply chain and on just shelf by facilitating auto id. And so that again maybe an on ramp if you like to the individual product identification, because it tends to be a less sensitive, easier process to enhance, because it’s mostly corrugated, flat with four color part work. So that's how all the things tied to together, it’s just the idea of ICP is the more media enhance to more opportunity it create. And nearly all of the media opportunities are our multiple, that is – you don't get just one application to get a bunch. And so the strategy for any large enterprise to move forward with Digimarc is to focus on getting the media enhanced first. And so we can talk to in the capital markets about packaging and more recently about thermal labels but now here appreciate for retailers in there, product suppliers that they all produce box of media. That could be enhanced that would provide the foundation for lots of useful applications in terms of improving operational efficiency and effectiveness on consumer engagement and satisfaction.

Understood. Thank you.

Your next question comes from Kevin Hanrahan.

Hi, Bruce. I wonder if you could give us an update on GS1, your partnership with GS1 U.S. and other countries and maybe GS1 global, talk about in terms of your barcode become in a second standards.

Sure. Thanks, Kevin. We got relationship with GS1 U.S. and GS1 Germany. And we have respectful initially supportive relationship with GS1 Japan, which is a not of part of the government there. We’ve began some discussions with a few other member organizations of GS1 and then GS1 global and the President of GS1 global are quite familiar with us and also very supportive. So with respect to their role in our strategy, we really strongly support all of their work and their standard of work and we think there is vital to continuing to improve auto identification and across the entire supply chain of all the industries served by auto ID. With respect to standards and specifications, we’ve begun a lot of detail work on specifications, which we intend to publish in the not to distant future for comment. And those specifications we hope will form the foundation when standards activities are appropriate to expedite the development of corporate standards for the global supply chain. So it’s interesting to answer the question because we just happen to be doing a bunch of work on that getting our specs in place. And where the specs become most important as when we move into various sort of low aero tolerant and some environments like distribution and logistics, as I’ve said, they have a terrible problem with the quality of reads of labels. We certainly want to help out there, but they have very tight specifications typically in that area of trade. And they would not embrace anyone who just came in and said hey, I want to put a link down on your label, makes life better. So we have to very detailed specs for activities like that. And then, overtime, as Digimarc Barcode moves into other areas of say health and safety, it will become widely important out there, very clear detailed specs. The purpose of standards and the specifications moves beyond just teaching into compliance and the allocation of legal responsibility. And so we contemplate that that will be emerging overtime here and we want to be ready when it does. So we’re building the specs for all of those reasons, and I think we’re making very good progress.

So the publishing you talked about, would it be in the form of a white paper to be coming out in later quarters?

We will publish specifications. So just like standards but without any official sort of characterization. So they will be – we have a signal specification that is in drop form and then, we’re building applications specific requirements and guidelines. And they will first go into the trade in a limited distribution and then, after we’ve gotten some feedback there then I presume, we can just publish them because that’s their purpose. So they’re not going to be secret. But we would naturally put them into the public domain before giving an appropriate amount of feedback from the trading partners that we deal with.

Okay. Thanks a lot Bruce.

Yes. So it will be a while.

At this time, this concludes our question-and-answer session. I would now like to the call back to Bruce Davis. Sir, please proceed.

All righty. Thanks everybody for your support, and we greatly appreciate it. We’re doing the best work we can for you and I think that we’ll continue to make progress. And we know what your desires are and we’re completely focused on where you want us to be focused on. So we look forward to talking to you again soon. Thanks, again, and good luck.

This concludes today’s call. Thank you, ladies and gentlemen for joining us for today’s presentation. You may now disconnect.