Digimarc Reports First Quarter Results; Announces Stock Repurchase Program

Digimarc Corporation (NASDAQ:DMRC) today announced financial results for the first quarter ended March 31, 2009. Revenues for the first quarter were $4.4 million, 13% lower than revenues of $5.1 million in the comparable period of 2008. First quarter net loss of $(0.8) million, or $(0.11) per fully diluted share, included a full quarter of operating expenses as a stand-alone public company. This compares to the predecessor's net income of $0.9 million, or pro-forma $0.13 per fully diluted share, for the first quarter of 2008, where operating expenses benefited from proportional allocations of various shared-services common costs of Old Digimarc.

Cash flow from operations for the quarter ended March 31, 2009, totaled $0.7 million, compared to $2.6 million for the comparable period of 2008.

The company generated Adjusted EBITDA in the first quarter of $(0.3) million, or (6)% of revenues, compared to $1.3 million, or 25% of revenues, in the comparable three-month period of 2008. Digimarc calculates Adjusted EBITDA by adjusting net income (loss) for the effects of interest, taxes, depreciation, amortization and non-cash expenditures for stock compensation. The reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, is included at the end of this release.

Digimarc reported backlog at year-end of approximately $57 million. The company also reported that its cash, cash equivalents and short- and long-term marketable securities were essentially unchanged from last quarter, at approximately $46 million on March 31, 2009.

In other news, the Company’s Board of Directors approved a stock repurchase program authorizing the purchase, at the discretion of management, of up to $5 million of the Company's outstanding common stock. Common stock repurchases may be made from time to time in the open market at prevailing market prices or through privately negotiated transactions. The timing of open market and privately negotiated purchases will be dependent upon market conditions and other corporate considerations, including price, corporate and regulatory requirements and alternative investment opportunities. The Company expects to use cash from operations to fund the repurchase program, which is authorized through April 30, 2010. Shares of common stock repurchased by the Company through the repurchase program will become authorized but unissued shares.

Conference Call

Digimarc will hold its first quarter earnings conference call on Monday, May 4, 2009, at 7:00 a.m. PT / 10:00 a.m. ET. The call will be open to the general public and the media, and will be broadcast live by webcast at www.digimarc.com and www.earnings.com. The webcast may be accessed at the company's website, www.digimarc.com, by clicking on the "Q1 2009 Digimarc Earnings Conference Call" webcast link on the "Events and Webcasts” page within the "Investors” section. This webcast will be available for later listening at both sites for two weeks following the live call. Thereafter, the webcast will be archived and available at https://www.digimarc.com/investors/events.asp.

About Digimarc

Digimarc Corporation (NASDAQ:DMRC), based in Beaverton, Oregon, is a leading innovator and technology provider, enabling businesses and governments worldwide to enrich everyday living by giving persistent digital identities to all forms of media and many other objects. The company’s technology enables a wide range of solutions for deterring fraud, counterfeiting and piracy, enhancing national security, and enabling new digital media distribution and monetization models that provide consumers with more choice and access to content when, where and how they want it. Digimarc has an extensive intellectual property portfolio, with more than 510 U.S. and foreign patents, and more than 420 patents pending in digital watermarking, media identification and management, and related technologies. Digimarc develops solutions, licenses its intellectual property, and provides development services to business partners across a range of industries. Please go to www.digimarc.com for more company information.

Forward-Looking Statements

With the exception of historical information contained in this release, the matters described in this release contain various "forward-looking statements." These forward-looking statements include statements about temporary delays on military and defense contracts, anticipated organic revenue growth for the year and other statements identified by terminology such as "may," "will," "should," "expects," "intends," "plans," "projects," "anticipates," "believes," "estimates," "predicts," "potential," "illustrate," "example" and "continue" or other derivations of these or other comparable terms. These forward-looking statements are statements of management's opinion and are subject to various assumptions, risks, uncertainties and changes in circumstances. Actual results may vary materially from those expressed or implied from the statements in this release as a result of changes in economic, business and/or regulatory factors. More detailed information about risk factors that may affect actual results is set forth in the company's Form 10-K for the year ended December 31, 2008, in Part I, Item 1A thereof ("Risk Factors"), Part II, Item 7 thereof ("Management’s Discussion and Analysis of Financial Condition and Results of Operations”) under the captions "Liquidity and Capital Resources” and "Forward Looking Statements” and in Part II, Item 9A(T) thereof ("Controls and Procedures”), and in subsequent periodic reports filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date of this release. Except as required by law, Digimarc undertakes no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this release.

Explanation of Financial Information Presented

The financial information presented for the three months ended March 31, 2008, is presented on the basis of "carve-out” financial information from Old Digimarc's digital watermarking business, or predecessor. It is important to note that the financial information in the carve-out financial statements does not include all of the expenses that would have been incurred had the predecessor been a separate, stand-alone public entity. As such, the predecessor financial information does not reflect the financial position, results of operations and cash flows of Digimarc's current business, had the predecessor operated as a separate, stand-alone public entity during the periods presented in the carve-out financial statements. Additionally, the carve-out financial statements include proportional allocations of various shared-services common costs of Old Digimarc because specific identification of these expenses was not practicable. It is expected that the initial operating costs of Digimarc on a stand-alone basis will be higher than those allocated to the predecessor operations under the shared services methodology applied in the carve-out financial statements.

About Adjusted EBIDTA

From time to time, we may refer to Adjusted EBITDA in our conference calls and discussions with analysts in connection with our historical financial results and our guidance for future periods. Adjusted EBITDA does not represent cash flows from operations as defined by generally accepted accounting principles ("GAAP”), is not a measure derived in accordance with GAAP and should not be considered by the reader as an alternative to net income (the most comparable GAAP financial measure to Adjusted EBITDA). The reconciliation of GAAP and Non-GAAP Financial Measures for the three months ended March 31, 2009, and 2008 are included in the above table. Management of the Company believes that Adjusted EBITDA is helpful to investors as an indicator of the current financial performance of the Company and its capacity to fund capital expenditures and working capital requirements. Due to the Company’s use of stock-based employee compensation, the Company incurs significant non-cash charges for stock compensation expense that may not be indicative of our operating performance from a cash perspective. Therefore, the Company believes that providing the measure of Adjusted EBITDA will help investors better understand the Company’s underlying financial performance and ability to generate cash flow from operations.