Digimarc Reports Third Quarter Financial Results

Digimarc Corporation (NASDAQ: DMRC) today announced financial results for its initial operating period since being spun-off on August 1, 2008 from the former Digimarc Corporation ("Old Digimarc") before the acquisition of Old Digimarc's secure ID business by a wholly-owned subsidiary of L1 Identity Solutions, Inc. Revenues for the period August 2, 2008 through September 30, 2008 were $3.2 million, and totaled $4.9 million for the combined predecessor and Digimarc operations for the three month period ended September 30, 2008, or 49% higher than revenues of $3.3 million in the comparable three month period of 2007. Net income of Digimarc for the period August 2, 2008 through September 30, 2008 was $0.4 million, or $0.06 per fully diluted share, and $0.2 million, or pro-forma $0.03 per fully diluted share, for the combined predecessor and Digimarc operations for the three month period ended September 30, 2008. This compares to net income of $0.2 million, or pro-forma $0.02 per fully diluted share, for the same three month period a year earlier.

The company generated Adjusted EBITDA for the combined operations of the predecessor and Digimarc in the third quarter of $0.3 million, or 6% of revenues, about the same generated in the third quarter of 2007. 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 with a quarter end balance of approximately $59 million. The company also reported that its cash, cash equivalents and short term investments was approximately $49.5 million at September 30, 2008.

Conference Call

Digimarc will hold its third quarter earnings conference call on Thursday, November 20, 2008 at 2:00 p.m. PT / 5:00 p.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 "Q3 2008 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 480 U.S. and foreign patents, and more than 400 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 can be identified, in some cases, 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 registration statement on Form 10 under "Risk Factors." 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 combines the periods through August 1, 2008, referred to as "carve-out” financial information from Old Digimarc's digital watermarking business, or predecessor, with the periods after that date, for Digimarc, or successor, to arrive at quarterly and year-to-date totals for comparative purposes. 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. Consequently, the financial position, results of operations and cash flows reflected in the carve-out financial statements may not be indicative of those that would have been achieved had the predecessor operated as a separate, stand-alone entity for the periods reflected 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 and nine month periods ended September 30, 2008 is 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 nature of the Company’s government programs business and revenue recognition policies and the Company’s use of stock-based employee compensation, the Company incurs significant non-cash charges for depreciation, amortization and 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.