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

Thank you. Good afternoon, everyone. Welcome to our conference call. Charles Beck, our CFO, is with me. We also have Bob Chamness, our EVP, in charge of Sustainability, joining us today to provide an update on progress and prospects in this increasingly important use of our platform in plastics recycling. On the call today, we will review Q4 and fiscal 2020 financial results, discuss significant business developments and market conditions and provide an update on progress and execution of strategy. We have posted these prepared remarks in the Investor Relations section of our website and will archive this webcast there. Before we begin, let me remind everyone that today's discussion contains forward-looking statements that have risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Charles will now comment on our financial results. Charles?

Thank you, Bruce. 2020 was an extraordinary year, full of unforeseen challenges and opportunities. We started the year with a focus on retail store operations, then along came COVID-19. The pandemic caused a reprioritization of resources at retailers that impeded progress with thermal labels and new retail account acquisition. Although revenues increased year-over-year, we did not hit our growth goals for bookings. The effect of the pandemic was not all negative. New customer and partner opportunities emerged along with unexpected sources of financing that Bruce discussed during the Needham Conference in January, leading our company to come out of the year stronger and better positioned than when we entered it. Revenue for the fourth quarter was $5.6 million, up 4% from Q4 last year. Service revenue increased 7% from $2.7 million to $2.9 million due to growth in services provided to Government and Retail customers. Subscription revenue increased 1% from $2.6 million to $2.7 million, reflecting the impact of new bookings offset by the impact of the renegotiated contract with a retail supplier partner in the first quarter of 2020 that we've discussed on prior calls. Revenue from government was up 10% to $3.3 million, driven by growth in both subscription and service revenue. Revenue from retail was down 8% to $1.4 million, reflecting the impact of the renegotiated contract I referenced a moment ago offset by higher Service revenue. Revenue from media was up 6% to $900,000, reflecting growth in subscription revenue. Retail bookings were $1.3 million, around the same level as Q4 last year. The impact of the pandemic continued to have an affect on bookings in Q4. As we enter 2021, we are encouraged by a growing pipeline of opportunities in supply chain and recycling solutions. We entered into several new contracts during Q4, most of which…

Thanks Charles. I provided a 2020 retrospective and overview of keys to success for 2021 six weeks ago at the Needham Conference in mid-January. The presentation is available on our website. Much has happened since then. Beginning at the Board level, I am very excited to welcome Sheela Zemlin to our Board of Directors. Her professional accomplishments, commitment to making a difference in the world, and thoughtful team-oriented leadership will inspire our employees and stakeholders. I expect that Sheela’s two decades of experience in leading high-growth, digitally-enabled companies will invigorate and inform boardroom discussions about resource allocations, market priorities, and opportunities to scale the business. In another important Board development, Riley McCormack has been elected lead Director. He inherits this role from Jim Richardson, a very capable leader, who will remain on the Board and continue to serve on the Audit Committee. Riley will be a strong advocate for shareholders’ interests, enhancing our shareholder engagement. He and I have been enjoying, for some time now, an extraordinary collaboration on how to best accelerate adoption of the Digimarc Platform, instill a high-performance culture, and build upon our values consistent with the environmental and social benefits that our platform is delivering to customers. In his new role, Riley will work closely with me, other Board members, and our management team to strengthen the company’s commitment to ESG practices, communicate with, and represent the interests of, the shareholder community, and seek ways to enhance overall Board and company operations. The company’s organization continues to evolve with the maturation of execution of strategy, growth in size, breadth and sophistication of the supplier ecosystem, and the resultant expanding universe of applications being built on the platform. The organization has changed dramatically in the past few years, as we evolved from an IP licensing company to…

Thank you, Bruce. It's my pleasure to join the call today to share recent developments and plans for our recycling and sustainability initiatives. If the pandemic showed nothing else, it has showed the critical role that plastics play in improving our everyday lives. For many applications, there's simply no alternative that performs as well. And, yes, plastic waste is a growing challenge to our environment, causing harm to our oceans, waterways, air quality and landfills. The issue is not plastic itself, but our relationship to plastic. Government scrutiny of plastic waste continues to grow, with new plastic directives coming from the European Commission, including the European tax on non-recycled plastic waste. The United Nations plastic treaty proposal initiated by the Ellen MacArthur Foundation and the World Wide Fund, World Wildlife Fund calls for a global agreement, setting goals and binding targets, together with national action plans and consistent measurement. The proposed treaty seeks to enhance investment planning, stimulate innovation and harmonize policy efforts. The UN Global Compact, the world's largest corporate sustainability initiative, is similarly focused on eliminating plastic waste in the environment. In the U.S., several state governments are moving forward with extended producer responsibility regulations, frequently known as EPR, which provide funding for upgrading trash sorting, and creating green jobs. EPR fees are used to provide incentives for consumer brands to use more recyclable materials and reduce the packaging footprints. It is estimated that more than 30% of product packaging contains plastic. Corporations are stepping up to do their part. There are more than 500 signatories to the Ellen MacArthur Foundation's New Plastic Economy Global Commitment, where they have pledged to increase the use of recycled plastic. The signatories include well known consumer brands such as L'Oréal, Mars, Nestle PepsiCo, the Coca Cola Company and Unilever. Government and…

Thanks for great recap, Bob. Secular trends in the digital transformation of businesses and increasing evidence of the need to move beyond the UPC are evident in the plastics initiatives, growing demand for brand protection, serialization, enhanced product transparency, and the enduring effects of the pandemic. With the fundamental building blocks of the Platform in place, it is time to obsess about our customers, including both partners and end users, delivering great value efficiently and effectively across the spectrum of enabled applications. Our product and Platform development are increasingly informed by end users and their suppliers bringing problems and opportunities to us that they believe can be uniquely addressed by Digimarc. The key takeaways from this quarterly update include: 2020 was an extraordinarily challenging year. Growth was impeded but we came out of the year stronger in many ways than when we entered. Key market themes: sustainability and recycling; traceability and brand protection; and safe, efficient retail store operations. Plastic recycling is showing surprisingly high momentum and amazing levels of industry participation. Walmart is increasing its investment in omnichannel digital transformation; and we are determined to play an increasingly important role. Customers for brand protection are encouraging industry solutions based on our Platform. We are formulating unique brand protection solutions that encompass physical and digital realms and leverage our security expertise. We have always led with our Values; ESG is providing a roadmap for execution and articulation of great sustainable companies. We are committed to the ideals of ESG and should benefit from growing appreciation for the way in which we run our company and in our contributions to supporting the global monetary system, mitigating the environmental effects of plastic, reducing food waste, and improving product safety Our leadership team evolving to manage wealth of opportunity across industries and new…

Thank you, sir. [Operator Instructions] Your first question is from Jim Ricchiuti with Needham & Company.

Hi. Good afternoon. Couple of questions. Clearly 2020 was a year where you guys made significant progress and it sounds as you have just a number of irons in the fire. So, Bruce one of the things I'm wondering if you could perhaps share with us, what some of the key milestones that you might be targeting with 2021. Because there are a lot of irons in the fire, and it would be helpful to know, which ones have the potential to have more significant impact near-term?

Sure. So the first thing Jim is -- is integrating our new executive leaders into the team. And we're engaged in that process as we speak. We brought them on board, because we want to sharpen our focus. We want to deliver more predictable and higher growth in our bookings and revenue. So we want to allocate our resources efficiently in doing so. Even though we have the most capital we've had in a very long time, we want to remain conscientious and how we apply it. And we want to demonstrate the leverage of those investments to our shareholders into our other communities that we serve. So I think, you'll continue to look at the sort of standard benchmarks of success of closing business, and growing the top line. But I think, you'll also see the increasing relevance of our company and its values to the kind of work that people care about in the - in the new financial market perspectives. And so, we've made an effort, you're not only to better articulate who we are -- what we do, which I think is -- is quite consistent with that new perspective on how to build companies of great enduring value. But we're embracing other measures that -- that we haven't yet focused on, to help with our board, in order to make sure that we're on track that we're doing all that we should be doing to be the kind of high quality successful company that we will be. And so it's -- it's a great time for us. Where there's an abundance of opportunity, new experienced, very capable leadership, strong board commitment to -- to both internal and external expressions of ESG. As I said, I've never in my life, I should have heard of industry…

It sounds like more the activity based on what you believe describe some of the recent developments is going to come -- be coming from the supply chain, part of the business more so than retail in 2021, is that fair characterization? And I'm wondering if there's expectation on your part that retail part of the business has the potential to perhaps maybe pick-up in the second half of the year? Or is it -- is believe customers still a little bit too cloudy?

Thank you, Jim for the follow-on question. I'll give you a quite a candid response on this. And that is that, the effects of the pandemic appear to be waning, but appear to be -- we don't quite know yet. And Walmart's leadership was cautious in their remarks about this. The change in the retail environment have occurred -- was startling repeatedly. And so they're digesting all of the required changes to accommodate new shopping experiences, and wanting to accelerate their investments. And so we're wrapping our minds around those things as they are. In terms of priorities, I think that the report decision [ph] exercise will go on for a while, hopefully, will climb back up in ways we should. But because of the desire to maintain a reasonable investment rate and the incredible opportunity posed by -- an immediate opportunity posed in the recycling area and the surprising inbound demand for brand protection and supply chain transparency, we're going to focus our retail development efforts on Walmart. We were blessed to have the world's largest retailer, as a customer. And they're an outstanding retailer and they're innovating, leading the industry. And so I can't think of any better place to invest in retail store operations than at Walmart. And so we're not going to be aggressively trying to add retail accounts. But we do have metal marketing discount in Europe, as 4,700 stores, very big, very progressive retailer who is enjoying success with our platform. And then we recently began the rollout of our use of our platform with a large Japanese retailer. So we've got three bigs and I want to make the three bigs more successful, make us more relevant, and make sure we're delivering value, and then roll all of that into the rest of the retail industry overtime. So I don't feel a sense of urgency to add more retail accounts, given our investment model or investment thesis that we have for 2021.

Got it. If I could just slip one more in Q3 call you gave some preliminary thoughts about 2021 in terms of revenues and bookings and OpEx. Any change Bruce you're thinking along those lines?

Well, it's been a stunning, really busy six or seven weeks since we were together. There's a lot going on. And so I'm more enthusiastic than I was six weeks ago about the year, but there's just a lot going on. And so I think I don't know exactly how to give you a detailed answer to that. I think things are different. But things are better than they were. And so, again, I've got two new Executive leaders. I've got three new Board members. And we went through the trials and tribulations of the 2020, including most recently, ice storm where most of us lost power for more than a week. And so we're getting our feet on the ground here and making sure that we have our priorities squared away. So, I would say in our next call I'll have a firmer response to your question, Jim. But I -- we're suffering from an abundance of opportunity right now. That's what we got to figure out, and figure what to do with it.

Understandable. Okay. Thanks. I'll jump back in the queue.

Your next question is from Jeff Van Rhee with Craig-Hallum Capital.

Hey, guys, this is Rudy on for Jeff. Thanks for taking my questions. I'd like to start with Holy Grail, certainly had some disruptions with COVID this year, or I guess in 2020. That said it does seem like the timeline to project completion and meaningful revenue has pushed out a bit since the completion of Holy Grail 1.0. I know you had some bookings in the quarter from one of the golden threads, but appears that was probably pretty minimal considering the total bookings number. So, I guess, at this point, what are your expectations as of today on the timeline from here to meaningful revenue contribution? Is that something you see over the next 12 months? Or is that still a couple years out?

Charles or Bob, do you want to chime in on this question?

Well, I guess I'll start and then let Charles command after. This year will be primarily project-oriented. But we're prohibited under the rules of aim to give a lot of detail at this point. They have a moratorium on a lot of the communications until they announce it after which we're able to point them. But the big projects, in a nutshell, involve getting suppliers, in this case, TOMRA and Pellenc ready to have their prototypes, testing a number of different types of recyclable materials, including a variety of polymers, a variety of other packages, even paper and the like, and have all of those preliminary trials looking for them full scale industrial trials later. Because its project, it tends to be a lot of time and materials, we do have a pretty full agenda of those coming up. I look for an additional leverage in 2022 as more broad scale adoption occurs and we go from projects into even more detailed, more global types of systems work, where there's a lot of leverage coming through the supply chain, through the -- to the enhancement partners, through the 3D converters and mold makers, and through the relationships with the brands and retailers. Charles, anything to add there?

No, I think that’s a good summary. For 2021, mostly service revenue, I think there's you know, depends on your definition of meaningful, but a good amount of service revenue opportunity there with upside on the licensing side, later in the year to early 2022.

I would say with respect to the use of the expression meaningful, I think we will have meaningful revenues, just as long as you're not getting a little more technical, and your definition will be non-trivial.

Got it. Appreciate that. Got it. And then as a follow-on, I think, if I look here, and I adjust for Walmart, and I look at your bookings, subscription revenue, retail revenue, and, just for Walmart, only being in there three quarters in 2019, and there for the full year in 2020. All of those appear to be flat to slightly down over the last couple years. And, Jim, kind of already asked this, you guys said last quarter, you thought you'd have triple digit bookings growth in 2021. And I guess we'll hear an update to that next quarter. But just, you know, what are the biggest near-term opportunities for revenue growth over the next 12 months?

Charles, do you want to respond?

Sure, it comes down to supply chain application. So, traceability, brand protection and recycling, that's where we think the majority of the growth in 2021 will come from, obviously, we're trying to expand the relationship with Walmart, we're not focusing as much efforts on retail operations outside of our key customers in that space. So it really comes down to the supply chain applications, and then all the work that we're doing in the HolyGrail. Another thing to keep in mind, though, in your comparisons, too, is that we did either one contract with a supplier partner, they cancelled, it's causing some of that to appear more flat than it would have been.

Got it. And then lastly, I just want to sneak just one more in. Walmart, I know again, a couple of quarters ago, you give an update. I think you said you're over 2,000 skews. Any update on that? And then also, of course, the thermal label rollout has been on pause for a while now due to COVID, any update there as to when do you think that will get going?

So first with respect to the package enhancement, it's substantially higher number now, I'm not sure we will continue to give detail information without Walmart's okay to do it, but it's much harder than 2,000 now. With respect to thermal, we're trying to figure out a way to implement that, but I think just a quick summary of the history there, we had a whole -- due to some software development late last year, meaning 2019 when we were hoping to get going, and then the pandemic caused everything to stop. And the proposed implementation has substantial implications for the shopping experience and for store operations generally. And so it's not yet back on the table, but not in any way cancelled and we're trying to figure out ways to either get it going there, or get it going somewhere else in order to have a fully articulated debug system ready for broad scale rollout as soon as Walmart's ready to introduce it into the new shopping experience.

Got it helpful. That's it for me. Thanks guys.

All right.

Your final question is from Robin Knipp with Janney Montgomery.

Thanks for taking the call. Bruce, on the last call, you mentioned that new customer opportunities are in the pipeline and forms of media and industries that you doubted would be contemplated by the investment community. Without any customer attribution, can you give us a bit more clarity on who or what these potential applications and the total addressable market that they may represent? And then I just have one quick follow up after that.

Yes, I don't I don't have anything to add there at this point. The -- I think one of the things that is changing now and I'd say the answer is uncertain is between then and now I hired two new senior executives, revenue and product. And I brought them on board for a reason I want them to provide leadership for us, guiding our investments and guiding our exploitation of opportunities. Right now we have more opportunity than we can manage. And so those two executives and other members of my leadership team are collaborating to determine where we should put our investment. And we're going to have to say no to some opportunities. And so, I don't have the answer for yet, because they're only a few weeks in. But, we're going to sharpen our focus. And we're going to -- by doing that I think provide better near term measures of success in the capital markets. But also, I believe, focus on opportunities that have great upside. And I've outlined them for you in this in this script. There's no secret about them categorically. It's just a question really about specific opportunities and how we resource them. The big change that occurred here that I want to make sure you all appreciate, is that Bob listed a whole bunch of increase of resources dedicated to recycling. That was not something I expected a quarter ago. Okay. When name came out with their announcement, I was very surprised at the level of participation 85 members. When they recently gave us a detailed work plan and told us that the membership had grown by 50%. My jaw dropped. It's like, wow, this is real. They care. They really want us to deliver. And so, we have to do some juggling. And that will mean some of the things that, I was contemplating the quarter ago, we may not resource for some time.

Okay, that's fair. Then just a quick follow up in the same vein, in your prepared remarks. You mentioned that leaders in three separate industries have recommended us to competitors in hopes of finding industry wide solutions to deterring counterfeit goods. And again without any custom attribution, can you just tell us which industries this covers?

Automotive, tobacco and pharmaceutical.

Super. Thanks, Bruce. Appreciate.

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

All right, thanks very much, everyone. It's a very exciting time for the company and we are doing our best to keep you up to date, keep you well informed. And make sure that we express our values and our technology in optimal fashion to all the relevant audiences. So we're working hard on every aspect of improving the quality of our company, so that we will in fact be recognized for what I believe we must be in that as a modern ideal really of value driven transformational technology supplier. So, thanks very much for your help and all of your support. I appreciate it. All for now.

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