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

Thank you and good afternoon. Welcome to our conference call. Charles Beck, our CFO, is with me. On the call today, we will review Q4 and fiscal 2018 financial results, discuss significant business developments and market conditions and provide an update on execution of strategy. We will archive this webcast and have also posted our prepared remarks for today's conference call in the investor relations section of our website. Please note that during the course of this call we will 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. Additional forward looking statements are identified in the prepared remarks we filed with the SEC and posted on our website under the heading Safe Harbor Statement. We also will discuss from time to time information provided to us by channel partners and actual potential customers about their business activities. We are providing this information as we understand it was represented to us, we cannot verify nor about for such information. Such forward looking statements and statements about partners and customers are subject to many assumptions, risk of certainties and changes and circumstances and assumptions we change we share about future performance represented point in time estimate. Actual results may vary materially from those expressed or implied by such statements. And we expressly disclaim any obligation to revise or update on the assumptions projections are the forward looking statements to reflect events or circumstances that may arise after the date of 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-K that we expect to file shortly. Any links included in this presentation are provided for general information and context only. Content references not incorporated by reference and you should not consider it a part of this presentation, we did not verify nor vouch for such information. For the first time, we are providing our prepared remarks for the call in advance. By doing so, we hope to improve the quality of our disclosures and make life easier for our analysts and shareholders. Another virtue of this approach is the opportunity to provide links to relevant information, demonstrations, and other materials. We will be soliciting feedback on these changes and continue to work to improve the process of communications with shareholders. As is customary, Charles will comment on our financial results. Then I will discuss significant business developments, market conditions, and execution of strategy. Charles?

Thanks, Bruce. Good afternoon, everyone. Q4 revenue was 5.2 million compared to 4.9 million in the fourth quarter last year. The increase in revenue was due to higher Discover and Barcode revenue, reflecting growth in bookings during the year, as well as additional program work with a government agency contractor, partially offset by lower Guardian revenue. Q4 Discover and Barcode bookings were 50% higher than the fourth quarter last year, at 1.8 million versus 1.2 million. Q4 2018 bookings included annual renewals from existing customers as well as bookings from new customers. We are continuing to experience lumpiness in quarterly bookings in the early stages of market development due to timing and varying provisions of early contracts. For the year, Discover and Barcode bookings grew 90% from 1.6 million to 3.1 million. Gross margin for the quarter was 60%, up from 58% last year, reflecting higher Discover and Barcode revenue in the mix. Operating expenses were essentially flat with the fourth quarter of last year. OpEx has stayed relatively flat for the last five quarters, as we slowed the pace of hiring in 2018 until we see significant top line growth, and we continue to drive operational efficiency. Net loss for Q4 was $8.0 million or $0.70 per diluted share, versus a net loss of 8.4 million or $0.76 per diluted share in the fourth quarter last year, primarily reflecting contributions from Discover and Barcode revenue growth. We invested 5.8 million of working capital during Q4, which was a nice surprise as it was substantially lower than the range of $7 to $7.5 million we provided on our last call. Cash flow was positively impacted by the early receipt of a $1.0 million customer payment as well as lower expenses than we anticipated. We used 5.1 million to fund operations…

Thanks, Charles. A little more than a month has passed since my last capital markets update so my remarks on operational progress will be brief. I have given considerable thought to what to do about working capital and have developed some specific plans for bolstering the balance before year end. As part of that process, we will be holding a Capital Markets Day on March 11th to make sure that our analysts and shareholders have a thorough understanding of our business and investment strategy. As I consider public versus private valuation of our platform, I believe that there are several areas where the public equity market needs more visibility and understanding. As we contemplate the desirability and potential need for more capital, I am determined to find ways to do, so that are accretive to our shareholders. As I outlined at the Needham conference, I have a clear sense of prioritization of sources of capital. We have designed a number of programs and plans to foster revenues from key accounts in concert with discussions with logical strategic partners who can bring both operational leverage and capital to continuing development of our Intuitive Computing Platform. Although I appreciate the relevance of near-term bookings and revenues as the foundation of analysts' models and focus of typical investors in the public equity market, these financial measures indicate more about the pace of adoption than the value of the platform. No doubt income is the best source of growth capital, and an important leading indicator of the likelihood of success, but it is not the be all, end all, measure of performance as we disrupt enormous market segments served by barcodes. Admittedly, it is a proper and very important focus for management. Don't get me wrong. However, I am worried that the public equity…

Thank you, sir. [Operator Instructions] Our first question is from Marc Weisenburger with B. Riley FBR.

Thank you. With regards to your European customer that chose to forgo a pilot and move directly to production, can you shed some light on to what their primary factors were that led to the decision and anything that can maybe deleverage to other potential customers to expedite adoption?

Sure. It's the maturation of the of the market development activities that aggregate into a change and approach. So we've done enough of these now that are known in the industry and that we share information about with prospective customers. Our process is sufficiently well articulated, the suppliers are adequately trained and motivated and there really isn't any doubt with respect to certain number of benefits of features of the platform that the features have large value that exceeds the cost. So in the case of this customer, their initial interest is on improving the checkout process. And you've probably seen our demonstrations, everybody gets it, there's no need to pilot our work. It's been in market now for a few years at Wegmans and some shorter times at some other retailers. And so the CEO of the company concluded there wasn't any need the pilot, I think because he couldn't figure out what it is it he wanted to learn in the pilot, so muscle just get going.

Okay, great. That's helpful. And I think you kind of alluded to this in the answer, but maybe if you could expand upon maybe how the nature of the discussions with potential customers that maybe the duration of kind of the sale cycle around bookings has changed relative to earlier periods.

Yeah, this is first part of what I hope to accomplish in the Capital Markets Day where I've got some more time to talk, but the short answer to that for now is, the investments that we've been making in enablement, right, in the infrastructure, and in tools, and training and education, in aggregation, the relationships of suppliers, and in improving our understanding of necessary business process changes. All of those things make everything more efficient and it as a natural part of market development for a new platform that is being introduced against a long standing product the dimensional barcode in a complex business environment. So it would naturally be very slow and cumbersome fraught to get some stars in the early days, and all of that gets mitigated with maturation of platform and the market development to this round yeah.

Great, thank you. And last one for me, can you provide some specific examples around your reorienting of resources to account management and delivery and how that kind of feeds into your longer term strategy and then maybe implications for the shorter term as well?

Yeah, we've got great. We have an extraordinary loyalty and a little turnover and people who care about our shareholders but they're all shareholders too. And so as any business is developing a new area of business, there will be phases of development that require that resources be allocated with certain priorities that change as the execution continues and the strategy matures. We've been able to accommodate those changes by asking our employees to shift their responsibilities and to restructure some departments and to try to improve communication and collaboration and to provide additional training. And so that's what I mean by what we've been done. That's why we've been able to hold the OpEx flat while continuing to adapt our resources to the pressing needs of the particular phase of development we're on. So in this current phase, it's about really orchestrating the accounts on their suppliers. And so we've shifted some people's responsibilities around, created some new roles, redefined responsibilities in order to get everyone focused on that because that's where the greatest benefit from investment resides at this point in time.

Our next question is from Robin Knipp with Janney Montgomery Scott.

Thanks for taking the call Bruce, just relative to the recycling effort in the EU right now. I appreciate the fact that you're still working through the exact construct of Digimarc's business model relating to this application, but at least ballpark is it fair to say that this would be at least something would represent eight to nine figures of annual revenues to Digimarc?

Well, we don't we don't have our model settled yet. I can say that when we are - through the process here if the committee recommends us to industry, I anticipate not because I have a special knowledge, but just for the understand how these things work that it probably will be followed by changes in regulation, the European Parliament all of the European governments are very concerned about plastics pollution and they're asking all of industries to step up and have published as much as possible in our channel available to us the indications of the human cry among very powerful organizations including the CPGs themselves and their suppliers that things have got to change. Well the two proposals that are being studied tagging and some digital watermarking are not necessarily mutually exclusive. So it may be that we both win, but I think that we're a far superior means of recycling, so if you assume 440 million tons of plastics recycling a year packaging, the large portion of that only 18% of plastics could be recycling the economic effect of improving that percentage recycle is massive. I don't know the quantifications just yet, but it's massive. And so this is not a small market opportunity. It's a very large market opportunity in my view, but I don't want to get too far ahead of the curve here I'm trying to attach the numbers when I don't yet have the model settled in. And we're engaging with many of the interest in New York asking them the question you want the answer to that's okay, so how do we this and my biases has always been and will continue to be that there should be a volume based pricing metric and so I suspect that the economic opportunity will be quite material for us.

Very good, thanks for the clarification Bruce.

Yeah.

[Operator Instructions] Our next question is from Ilya Grozovsky with National Securities.

Thanks. I had a couple of questions. Number one, you gave up the bookings number for the barcode for the fourth quarter. I don't think I heard the revenue number, what was the revenue number for Q4?

We did not specifically have on our prepared remarks. But barcode revenue was 600,000 in Q4,

600, okay and then if you look at basically you double the bookings in '18 from '17 on the barcode side, what did you learn in that process that you will apply to '19 and kind of, what kind of visibility, I mean, you obviously have a lot of ongoing partnerships going and trials. What kind of visibility do you have on the barcode side for '19? Do you think it doubles again or even better or - so just those are my two questions, kind of what did you learn? And what kind of visibility do you think you have in '19 on the barcode side? Thanks.

Sure, this is British. So what we've learned and what we - expected to continue to see it for some time internally, market development there's this lumpiness in bookings. We do expect the growth rate to continue to be high and to escalate, but it will, we expect, make a big move once we achieve one or more tipping points and I've described them as well as a candidate I'll describe them even greater detail in our next get together in March. But I think the market has a better understanding of our platform, multi sided platform and how such things develop the size of the platform, so ours is in consumer price and retail is sort of three nodes on retailers and consumers and consumer packaged goods company, so everyone knows that. But what I've observed personally now it's consistent with what I had originally theorizing. That is, if we can move the industry leaders in retail and CPG to volume production, everything will change a lot in a positive way, okay. So when is that? When is that point? I can't define it specifically. I can tell you one of the evidences was in this work we're doing in Europe, which is a couple of months old involving one retailer and it sort of lit up the continent, everybody wanted to talk to us, alright, so then that needs to get translated obviously into bookings and revenues. How long does that take? It should take continuously shorter has time passes. So it shouldn't be as long as it used to be. But again, I can't quantify for you how much faster it will be. So that's just in one geographical market. In the global market, I continue to believe that the US is a beacon of globalization and so when we can move the identified large customer for working with which to be Walmart, Costco, P&G and PepsiCo and there are others. But I'm just focusing on those - get those guys going. I think everybody's going to jump on and so that will be next quarter or next year, I can't tell you for sure. It's up to them, not up to us. And so as we operate within the capital constraints that we have, we do our best to make it happen sooner instead of later. So that's my job. My job is to try and make it happen as fast as I can. But we have limited means to influence the pace.

Okay, thank you.

Our next question is from Jeff Bernstein with Cowen.

Hey Bruce, just wanted to see if we could get a couple updates, one on the Japan area?

Just a general opinion of Japan?

Yeah.

Yeah, we're trying to kind of figure out adequately resource Japan. We have a number of things going on over there. And we're struggling with the resource allocations to provide as much support as I would like to provide. And this quarter actually, literally last weekend, a couple of weeks from now are the big trade shows. So the grocery shows is getting done and retail tech is in March and so probably on March 11, I won't have the update that I would have a month later. But we have teams that will be over there during March, dealing with customer opportunities and participating with some of the partners in the show.

Great and then I know you've been trying to get sort of native Digimarc discovery baked into iOS and Android and you have any update there, are you sensing any progress?

Yes, I can tell you a couple of things. One is that we have done some internal development work and demonstration of our ability to integrate into the what's called in the Android Marketplace, the camera application, but from a user perspective it's the camera itself or the cameras stack and we're quite confident about our ability to implement. With respect to Apple, Apple is a little different situations and not quite as open as Android to the ability to provide technical proofs. You have to work with them their structure, governance structure. As I've said in the past and I continue to believe quite firmly the only reason we're not there is prioritization. And so this ties into my remarks today about the tipping point, the influence of industry leaders. We need to get some of those guys far enough along and get them perhaps even to engage in some influence with Apple and Google to prioritize the integration of Digimarc barcode into the cameras. I firmly believe that auto ID must become a camera feature. And then we certainly should be one of the means of auto ID that's included when that happens. But no one has done that yet. So it's not that we're not getting there even though QR code is native in iOS. I don't know anyone who use it. I don't know much about anyone knowing about it even, so it hasn't yet happened. I think it must happen and we're going to do all we can to make it happen sooner instead of later. But in the meantime, we also are continuing to explore and making progress on working with other providers of what I'll call modal discovery whereas ours is seamless multi modal including Digimarc barcode to include Digimarc barcode in their platforms as well, which will help to grow the discovery side of our business in the meantime, but I still think that the industry will get to where I said they'll go, but they've got to get there in a way that doesn't encompass merely Digimarc barcode.

Got you and then lastly, there was an interview with somebody from Digimarc talking about that we might see this year some incentives from some customers to kind of get customers using their phones for discovery. Is that an official prediction from you and anything you want to say about that?

I'm not sure which interview you're talking about, it wasn't me.

No, it wasn't you.

Okay, that well - and again, this is probably a better subject for March because I want to give you a short answer to it, but it's actually probably a complicated matter. We began our work back in the magazine publishing business on consumer engagement. And we have done many tests and trials of consumer engagement for the benefit of consumer products companies, and all of them have been technical successes. But those technical successes and anybody else's technical successes have not resulted yet in harnessing the interest of consumers' use of Smartphone's to shop more effectively. Consumers use them largely by typing something into a search window while they're standing in front of a product to get a different price. So there are a lot of things that industry needs to do in order to make that experience happen. I'm very confident that we are really good trigger to make it happen. And that was the point of the quick summary of how the government views our data carrier as a responsible means of activation for providing health based information to consumers and making the purchase decisions. SmartLabel also endorses as a means of doing that and then this initiative GS1 digital link is worth some for the reading for those who are interested in this subject and that gets an effort by just one global the parents of the member organizations to help the consumer products industry to provide what they call a brand authentic information to consumers. That is that they don't have to go through Google or Amazon to get their information and get it directly from the supplier using the Smartphone. For that to really work well that capability should be in the cameras and so that's one of the ways in which industry could perhaps present the opportunity to the iOS and Android development organizations as something that should have higher priority. So we're ready and where everybody likes what we do is just the industry needs to get that figured out and it's a much larger matter than then us.

Okay. And then lastly, any kind of update on hang tags.

Yeah we're continuing our work on hang tags with Costco and we are presenting the opportunity to other retailers and hope to get them to come on board soon. It's a great opportunity to improve soft goods not just order processing, but also to create some options for marketing like we showed at MRF, so we're going to be presenting that to all the relevant prospects this year and hoping to build some momentum around that as well.

Great, thanks very much.

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

Good. Thank you. I'd just like to tie together some of the Q&A and remarks here as I close and as we segue to our next Capital Markets Communication in a few weeks. I hope that you get a flavor from the remarks today and from the questions and the answers that $50 times the package is not a definition of the business value that certainly doesn't encompass hang tags, doesn't encompass thermal labels, doesn't encompass recycling, doesn't encompass manufacturing. So that is why I think it's really important for all of us to get together and some of us virtually some in person to really let Charles and I described the business more fully, more completely, so that you can make a good assessment. And I'll respect your assessments of the value of the company. But I just feel we really are lost in the trees here. And we keep looking at one thing and the other thing and the other thing and we're not looking at all the things and all of those things are synergistic within the multisided platform model that was the foundation of our strategy. So those things aggregate value, they're not alternative definitions of value. So with that said, I want to thank you again very much for your support. And I'm looking forward to making that presentation and to doing all we can to have us have a very successful 2019, so thanks very much and goodbye for today.

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