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

Thank you. Good afternoon, everyone. Welcome to our conference call. Charles Beck, our CFO, is with me. On the call today, we will review Q4 and fiscal 2019 financial results, discuss significant business developments and market conditions, and provide an update on progress in execution of strategy since the last update of the Needham Conference in mid-January. We have posted these prepared remarks in the Investor Relations section of our website and will archive this webcast there. Please note that we will make certain forward-looking statements in this call, and in the prepared remarks we filed with the SEC and posted on our website under the heading, Safe Harbor Statement, regarding revenue recognition matters, results of operations, investments, initiatives, perspectives on business partners, customers, prospects, industry trends, and growth strategies. We also will discuss from time to time information provided to us by our partners and actual and potential customers. We are providing this information as we understand it was represented to us. We do not verify nor vouch for such information. All such statements and information 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 statements or other information that we provide during this call to reflect events or circumstances that may arise after the date of this conference call. For more information about risk factors that may affect actual results – or 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 our prepared remarks are provided for general information and context only. The content referenced is not incorporated by reference and you should not consider it a part of this presentation. We do not verify nor vouch for such information. Charles will now comment on our financial results, then I will discuss significant business developments, market conditions, and execution of strategy. Charles?

Thanks, Bruce. First off, I just want to give everybody a heads up that the earnings release was distributed through PR Newswire on time. However, Yahoo Finance News Feed is for whatever reason not picking up that release. We’re working with them to make sure that the release is posted on that site. It is available through all other channel zone, including our own website, as well as the SEC website. Barcode revenue for the quarter increased 138% year-over-year to $1.4 million. Total Q4 revenue increased 2% to $5.3 million from $5.2 million in the fourth quarter of last year. The increase in Barcode revenue was offset by lower service revenue, reflecting the timing of program work with the Central Banks. Barcode bookings during the fourth quarter were $1.3 million, down from $1.8 million in Q4 last year. The decrease was due to sudden and unexpected corporate cost-cutting at one of our supplier partners developing supply chain applications, leading to renegotiation of our contract with them. That contract contributed $1.3 million to bookings in Q4 last year. We expect a Q1 booking from a revised contract that is being negotiated. We expect that the new contract will have less fixed and more variable elements than its predecessor, yielding lower short-term bookings and revenues with higher potential upside. Once things are settled, I will provide additional details. This does not affect any of our retail business. This developer’s focus is on supply chain improvements. Gross margin for the quarter was 66%, up from 60% last year, primarily reflecting the impact of higher Barcode revenue. Operating expenses increased by 9% from Q4 last year, primarily reflecting routine annual compensation and benefit adjustments for our employees and increased headcount to address growing demand and delivery requirements. Net loss for Q4 was $8.7 million,…

Thanks, Charles. Awareness of Digimarc and engagement have risen to much higher levels in the last few months. Website traffic is up across the Board in Q4. Social media following increased as well. We are working our way up the ranking of IT priorities with retailers. Many CPGs are now engaged across the range of relevant applications in manufacturing, retail store operations, and recycling. We begin each year with the coincidence of NRF and the Needham conference. I described our progress during 2019 and some insights gained at NRF during Needham; thus, I won’t dwell on 2019 in this update. The Needham webcast is posted on our website for those who want details of our progress last year. At a high level, the year included many important milestones, as Walmart and Netto came on board, Wegmans renewed its contract, and support among global brands expanded significantly. What is hard to adequately communicate is growth in our supplier network and our ability to support their essential role in our success. As I observe the rate of progress in adoption and revenue growth, this is where we can get the most leverage. We have added staff in this area and focused a great deal of senior management on establishing effective mutually profitable partnerships in all aspects of the developing ecosystem. Success in these endeavors will facilitate sales growth and pay rich rewards to our shareholders in the long-term. We had the best show ever at 2020 NRF, with demonstrations of efficient inventory management, food waste and shrink reduction, sustainable and connected packaging, connected apparel, and print to web connected catalogs, print ads and promos. There were more than 3,000 booth visitors, 34 partner and 24 customer briefings, the most prominent of which are listed in the prepared remarks. We entered into our…

[Operator Instructions] And your first question comes from the line of Mike Cikos with Needham & Company.

Hi, guys, thanks for taking the questions today. I appreciate it. Wanted to ask you about this contract renegotiation that you guys are working through right now. Can you give us a sense of like, were there any bookings that came through on this contract in Q4, that was just at a hope until you guys go through this renegotiation process?

Yes. There were no bookings in Q4 related to that contract. We’re hoping to wrap that contract in Q1, which would then result in booking.

Okay. And then just for clarity here, it says that there’s going to be less fixed, more variable component is the expectation for that contract? So I guess, the anticipation then is that lower short-term bookings and revenues in the near-term? Can you help us understand what’s the greater upside potential stemming from that contract that was confused by that comment?

The prior contract had a fixed fee and the new contract has a lower fixed fee with a variable component in order to allow us to be paid more for growth in that business.

I see. And then one more, if I may. Just coming back to the Walmart with the system integration issues that you guys are facing, doesn’t seem like it’s anything on your end there. But what gives you the confidence in being able to start delivering those labels during Q2 to stores? Is it customer conversations there? Just anything that would be helpful?

Yes. It’s regular developer updates, nearly daily updates that I personally received, give me the confidence.

All right. I’ll jump back in the queue. Thank you, guys.

All right.

[Operator Instructions] And your next question comes from the line of Jeff Van Rhee with Craig-Hallum.

Hey, guys, this is Rudy on for Jeff. Couple of questions for me. One, I want to start with Netto. I think a couple of quarters ago, you guys said, you were expecting via 3,000 SKUs by the end of the year to get the article the other day or maybe in the prepared remarks said, there’s 2,000 currently. And then also I’m curious, if there’s anything that you guys have learned from that roll out, are the red shirts on in the stores? Are there any ROI metrics that you guys could share? What is – maybe anything Netto has seen from it? Just any additional color there would be great?

Okay. First, with respect to us saying 3,000 Netto, I’m pretty confident no one here said that. So you may have read it somewhere from someone else. And so it’s more than 2,000 today, which is more than, I think, anyone would have expected in the short-term that we’ve been working with them. And the evidence is maturation of our delivery capabilities and that was done by suppliers, not us, even better. In terms of how it’s going in the stores, I think, that’s evidenced by the awards that were received and – by other press that is going on in Germany right now the UBO [ph] press, including interviews with Netto and their basic infrastructure is in place. So they’re enjoying the benefits in real time.

Got it. And then also you commented briefly on sort of some learnings that you had in the quarter from discussions with potential strategic. Could you just expand on that a bit in terms of what your takeaways were and maybe how we should think about the potential for strategic going forward?

Yes. We will talk to many of the big players now and it’s a very unusual environment for such discussions because of the enormous success of the largest IT companies and their very high market caps and their sense of sort of unrestrained growth. So typically, in talking to large companies, he would be saying, you better act quickly, because we’re going down the Street to your competitor. And if he does think about the largest companies who will be excellent partners of ours, that’s not a very strong argument these days. And so we really need to demonstrate the – both the short-term and long-term relevance of our business to their business on a pretty detailed level in order to get the kind of engagement that we want.

Got it. Got it. And then lastly, if I could just real quick. Amazon opened their first four cashier-less store today. Just any thoughts there on sort of longer-term potential threats to what you guys envision with this mark?

Yes. It’s a little bit that the Emperor has now closed. It’s not a full size store. They call it a grocery store rather than their first model, which you might call snack shop or a deli. So it’s not nearly as big as the mass merchants. It’s smaller than Walmart, neighborhood markets. It’s an effort to scale some and we’ll see how it goes. But I would suggest to anyone who’s interested among our shareholder base to go wander around Amazon Go store if you have any that are reasonably accessible to you and studied the lack of crowds. I understand what they’re doing. I’ve been to many of their stores and there is some appeal for some demographic for some shopping, but list and see how the grocery shopping goes. So it’s a small supermarket and we will study it carefully. But thus far, we have not seen the ROI that one might want to see from the amazingly large IT investment necessary to operate those stores. And also take a look at how many store personnel are around and the nature of the products on the shelves and the effective use of floor space. All those things – if we look at all of those things just don’t meet the BR, because Amazon does an outstanding job with BR.

Got it. Great. Thanks. I’ll hop back in queue. Thank you.

You do have a follow-up question from the line of Mike Cikos with Needham & Company.

Hey, guys, thanks for taking the quick follow-ups. Just two items here. First, on the OpEx, I know that you’re guiding to that 10% increase in Q1 to $13.6 million to $13.8 million. Just wanted to get my arms around that. So are there one-time items that are going to be impacting that Q1? I know that you’re hiring and you have the compensation adjustments and the increased headcount. But I got to imagine that, that might decline depending on tradeshows and RF audits. Just anything that would be beneficial as we look out to the rest of the year?

Yes. So it’s a combination of – as we said, compensation adjustments and headcount ads, which would have impact, obviously, the rest of the year and then also some non-recurring items. So, obviously, we have a big tradeshow in the first quarter. We also have our year-end audit, and then there’s some – also some additional kind of non-recurring sales and marketing initiatives that we have in the first quarter.

Is there any…

They’re kind of – oh…

Go ahead, I was going to ask you, if anyone could specify those non-recurring items?

Yes. The non-recurring is around $1.75 roughly if we add up the three components.

Okay. Thank you for that. And then the second item, I know that the service revenues from the program work with the Central Banks came down to a timing issue. Just wanted to get a sense, could you help us size up this service work? And I just wanted to ask in conjunction with that, should we expect that to come through in Q1, or do you have visibility into when that does hit you guys?

Yes. It’s a fact that we – so we have a generally a fixed budget with the Central Banks for the year. We did more of that work in the first nine months. So it’s specific to 2019. It’s not anything that would carryover. We just did more of it earlier in the year, so there was less of the budget to use in the fourth quarter.

All right.

So it’s purely timing. The amount of revenue that we received from the Central Banks this year was in line with the budget and our expectations is just the timing of the work.

Yes. Then I guess, if we look at 2020 then based on that fixed budget is the expectation right now that it will be more spread out over the course of the year, or are we expecting again more condensed into those first three quarters of the year?

It’ll be somewhat dependent upon – so most of the budgets fixed there are variable components and the variable components are more challenging to predict when those will occur. But generally, we do try and frontload, so that we don’t get caught at the end of the year with more work to do than we have resources for. So I would say that 2019 would be a pretty good indicator of what I would expect for 2020, but with growth in the overall budget that we’re working with.

Terrific. All right. Thanks, again, for the follow-up, guys.

You’re welcome, Mike.

And at this time, I’d like to turn the call back over to Mr. Bruce Davis for any closing remarks.

All right. Thanks very much, everyone, for participating. We’ll look forward to updating you again soon, and thank you for your continuing support. Bye for now.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.