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Digimarc Corp (DMRC) Q4 2017 Earnings Conference Call Transcript

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DMRC earnings call for the period ending December 31, 2018.

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Digimarc Corp  (DMRC 2.15%)
Q4 2017 Earnings Conference Call
Feb. 21, 2019, 5:00 p.m. ET


Prepared Remarks:


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

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Thank you, and good afternoon. Welcome to our conference call. Charles Beck, our CFO is with me on the call today. We'll 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 and potential customers about their business activities. We are providing this information as we understand it was represented to us. We do not verify nor vouch for such information. Such forward-looking statements and statements about partners and customers 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. And we expressly disclaim any obligation to revise or update any assumptions projections or other 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. The content reference does not incorporate by reference. And you should not consider it a part of this presentation. We do 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 disclosure 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?

Charles Beck -- Chief Financial Officer and Treasurer

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 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 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 million to $7.5 million we provided on our last call. Cash flow was positively impacted by the early receipt of $1 million customer payment as well as lower expenses than we anticipated. We used $5.1 million to fund operations and $400,000 for capital expenditures. We ended the quarter with $43.7 million in cash and marketable securities.

We anticipate cash usage will be between $6 million to $6.5 million in the first quarter. Everyone is intently focused on growing revenues from key accounts. Much of our efforts revolve around orchestration of suppliers and identifying and supporting customer business process changes to scale implementations. We are doing all we can to shorten the critical path to top line growth.

Turning to our financial results for the full year. Revenue for the year was $21.2 million compared to $25.2 million in 2017. The decrease reflects the impact of the one-time $3.5 million upfront license fee and $900,000 of related royalties that we realized last year from a licensee. In exchange for the upfront license fee, we waived any future royalty obligations from this licensee in one of the licensed fields of use.

Excluding the impact of the one-time license fee and related royalties, revenue increased $300,000 in 2018 reflecting growth in Digimarc Discover and Barcode revenue, partially offset by lower Guardian revenue. Barcode revenue increased $1 million due to contracts with new customers during the year and escalating annual fees from existing customers. Digimarc Guardian revenue declined $500,000 largely due to one customer contract termination during the year. Service revenue was down slightly due to lower volume of program work with the Central Banks. The volume of program work can vary year to year depending on the program roadmap governed by the Central Banks.

Gross margin was 60% for the year, 6 points lower than last year, reflecting the impact of the one-time license payment and related royalties in 2017. Operating expenses for the year were 7% higher than last year, reflecting the full-year impact of staffing increases in 2017 and early 2018. Our professional staff increased by six full-time employees during 2018 versus 27 last year, with most positions focused on sales and delivery of Digimarc Discover and Barcode in both years.

Net loss was $2.86 per diluted share for the year versus $2.44 per diluted share last year, reflecting the impact of the one-time license fee and related royalties and higher operating expenses. We invested $24.1 million of working capital during the year, including $21.2 million to fund operations and $2 million for capital expenditures. For further discussion of our financial results, and risks and prospects for our business, please see our Form 10-K that we expect to file shortly.

Bruce will now provide his comments on significant business developments, market conditions, and execution of strategy.

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

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, 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 market may miss the forest for the trees if I don't do a better job of explaining our progress and path forward.

Thirty-minute conference calls and 26-minute presentations at investor conferences are just not adequate to convey all important aspects of our relevance as a Multi-sided Platform that can serve many enormous industries and provide multiple paths to critical mass. It seems like the value of the platform gets lost in discussions of details of early feature and market development, sometimes leading to truncation of perceptions of value.

During our presentation in March, I intend to provide a thorough exposition of development of the platform and associated markets. Charles and I will provide greater clarity about our assets, their monetization, and unexploited potential. I will explain clearly why we are investing the way we are, our goals, KPIs, expectations, and concerns.

As I noted in our last call, acceleration of growth will be heavily influenced by the pace and outcome of pending contract negotiations with certain customers and prospects. In the meantime, we are restraining the rate of investment. Tight management of investment creates tension regarding pace of adoption. We are mitigating the tension by improving efficiency of enhancement, drafting specifications, and reorienting all the resources we can to account management and delivery.

The focus on retailers and CPGs is a carefully considered decision that I made, mindful of access to, and the cost of capital, as a small cap public company. We are constrained by access to capital to invest modestly and carefully to bring sufficient early indicators of success to fund growth and expansion to new markets. Even though I believe we will be marvelously successful, that is not the definition of the value of the company or our Intuitive Computing Platform. There are many reasons for optimism, as indicated in my most recent investor presentation in January.

The obvious broad relevance of our platform requires that we orchestrate many aspects of account management, including customer and supplier resources. Their business process changes govern the pace of our progress with accounts. Given the relative scale of Digimarc to our key customers and their suppliers, this is quite a challenge to get everyone rowing in the same direction. This is an area where a strategic investor could make a big difference.

We continue to support customers' ambitions to improve consumer engagement to address changing shopping behaviors and government regulations. In December 2018, the USDA issued regulations for on-pack disclosure of genetically modified organisms in products. The effective date is February 19, 2019. The implementation date is January 1, 2020. Thus, CPGs must begin making implementation decisions soon. Digimarc Barcode, also known as digital watermarking, is explicitly recognized as an approved means of linking from packages to required disclosures.

You may recall that Digimarc Barcode is also an approved means of linking from packages to SmartLabel content in the multi-industry program run by the Grocery Manufacturers Association and the Food Marketing Institute. Our most recent innovation in support of linking consumers from packages to useful information and services concerns the GS1 Global standard, known as GS1 Digital Link, published in May 2018. The first product in the world on shelf, employing the new standard, reached stores recently, using Digimarc Barcode as the data carrier and activation means.

The efficiency and versatility of Digimarc Barcode to serve these government regulations and consumer initiatives are becoming more apparent. The proliferation of linking requirements favors our Barcode over alternative data carriers like QR because of our versatility in satisfying all these requirements as well as supporting many other applications like robotic shelf management, store associate price audits and pick and pack, manufacturing QC, et cetera. It is becoming more obvious that awkward configurations of multiple special purpose 1D and 2D barcodes would be necessary to accomplish what we do with a single platform and data carrier.

More evidence of broad relevance of our platform is being demonstrated in consumer products manufacturers. The manufacturing quality control application that we have developed in cooperation with a leading CPG and their machine vision supplier has been presented to other CPGs and seems to be gaining traction. Several CPGs are piloting the solution as we package it up for general commercial release.

We have more synergy to offer those who employ Digimarc Barcode for manufacturing quality control. A logical bookend to manufacturing is emerging in plastics recycling. There is a serious large-scale study under way in Europe regarding the use of digital watermarking, also known as Digimarc Barcode, in plastic packaging to improve sorting of waste to foster more effective recycling. It is important to appreciate that Enhancement of plastic substrates and wraps in concert with labels would add another dimension to the manufacturing application while opening the door to what has been, functionally, a totally different market. This is an example of operating leverage inherent in the platform design.

Being capital constrained, we are not participating fully, but we are getting better informed. From what I've heard, taggants have limitations that we do not share, perhaps most importantly, there appears to be pretty limited number of identifiers, whereas we are practically unlimited for recycling purposes. With our ability to enhance labels as well as substrate, we can provide much more important information about plastic containers, their sources, and uses. The additional identifying information in labels also improves the likelihood of high-speed detection of degraded materials common in sorting facilities. It would be very useful to likely regulatory regimes to be able to trace as much products as possible to the companies that produce them.

Global production of plastic reached 448 million tons in 2015. Only 18% is recycled. The largest market for plastics is packaging. We have not attempted to assess the size of the TAM for improving recycling. It is likely very large, given the paucity of alternative means of improving sorting in relation to the scale of the environmental problems that improved sorting can mitigate. The business model for this possible new feature of the platform has not yet been established. We have begun discussing economics with participants in the initiative. I will provide more information on this subject in March.

The work group intends to publish its recommendation for a global standard in May of this year. This could be a very important event in maturation of our platform, signaling yet another massive market opportunity, one with a stamp of approval from a well-regarded industry work group.

The use of Digimarc Barcode in plastic consumer product packaging is synergistic with our manufacturing solution and general strategy, adding value for CPGs who embrace our platform, and completing the full circle of product package lifecycle support that our platform provides. Our recent announcement with HP concerning use of serialized Digimarc Barcodes to deter counterfeiting and improving product recall processes further illustrates full product lifecycle support made possible by our Platform.

Pilots of Digimarc Barcode for Thermal Labels are continuing with Wegmans and New Seasons. A third pilot has begun. Another retailer is transitioning from pilot to production. There are several more retailers in the queue.

As our software and support mature, we are becoming more sophisticated and efficient, and supplier competencies are improving. The leading edge of this important aspect of strategy is in Europe, where a major retailer has begun implementation of our platform for its private brand with packaging and prepress suppliers on the front lines. Nearly 200 packages have been enhanced in the first 50 days, with a plan to complete nearly 3,000 packages in the first year. The primary motivation is improving checkout. This program is a leading indicator of how financial and operating leverage, and geographical expansion, can be realized.

We are hopeful that success in such initiatives will inspire others to follow suit so that business can be acquired, pilots conducted, and transitions to production occur more quickly and effectively. It is noteworthy here that the retailer chose not to pilot, rather to move directly to production. Hopefully, this also becomes more common. My confidence in the notion of tipping points in market development is reinforced by a significant increase in inquiries from European suppliers and retailers based on industry knowledge of what is transpiring. We do not yet have permission to identify the retailer. As you know, our vision assumes that, in a mature state, our partners can act autonomously in building value on the platform, and they, or their clients, send license payments to Digimarc.

We are in the process of rolling out a remarkable doubling of the resolution of Digimarc Barcode for packaging. The basic tile of our carrier is now a little bigger than a typical thumbnail. The doubling of resolution means that there will now be four times as many codes in any given enhancement area. The higher resolution also reduces visual artifacts, facilitating faster, more economical enhancement. This follows upon our release in Q4 of an Adobe Illustrator extension that also improves enhancement efficiency.

Among our most notable R&D accomplishments is Signal Rich Art, the merger of mathematics and artistic design to make Digimarc Barcode inherent in design. We are exploring opportunities with consumer goods manufacturers to commercialize these techniques. Some shareholders noticed that we filed a patent infringement suit, the first one in many years. We believe that the defendant needs a license from us. It is not a large company so we don't expect that the outcome will have a material effect on financial performance. It evidences our will to enforce our patents when license negotiations are not successful, following a long tradition of obtaining reasonable value for use of our inventions.

As I tried to indicate in the Needham presentation, we have been making steady progress in execution of strategy. Despite these accomplishments, perception of value in the public equity has been languishing. We understand that the key measures of performance for the capital markets are bookings, revenues, cash flow, and number and scale of client engagements. Customers are focused on demonstration of ROI, functional and aesthetic quality of enhancement, efficiency, impact on business processes, and TCO.

As we address these key performance indicators of investors and customers, we endeavor to allocate capital wisely while improving our customer engagement, supplier management, software development, training and support. We are becoming more sophisticated in all aspects of successful execution of strategy as our understanding of the platform, markets, and ecosystem matures.

Our priorities for 2019 are to move the market leaders to levels of implementation where they will influence the rest of the market to adopt, which should accelerate growth in bookings and revenues. We have put in place the basic building blocks with industry leaders, and their suppliers, in key geographic markets, with most of our resources focused on US retailers and CPGs. The inflection points that I have theorized will occur when the aggregate value of the platform reaches critical mass or when the side network effects on relationships of participants create momentum. I will explain more about this at the Capital Markets Day.

My focus for the foreseeable future is to mitigate concerns about when inflection points will occur and the adequacy of our working capital to sustain us until then. All of the management is obsessing about creating these tipping points. Much of our work concerns orchestrating customer and supplier resources to accommodate a new data carrier in mission critical, highly managed, aspects of complex supply chains. I believe that we can improve our capital base in accretive ways through strategic partnerships. I appreciate the wonderful support of our shareholders and am committed to improving the understanding of the public equity market of our business and seek capital, if needed, elsewhere, until fair value is realized in the public market. Again, more to come on this in a few weeks.

I have witnessed instances of powerful influence that industry leaders can have on suppliers and competitors. We must deliver value and scale to these leaders. And we must align ourselves with industry leaders on the supply side as well. I have witnessed first-hand the indirect group network effects of movement of industry leaders toward adoption of the platform. The tipping point to great value creation for our business is a function of achieving critical mass in the platform or sufficiently powerful side network effects to aggregate users that provide incentives for more users to join on each side. The progress we have made in developing technology, support for, and use of, ICP supports the notion that we are heading in the right and nearing the cusp of great accomplishment. Reliable, efficient identification of media is a critical element of progress in the digital age for so many industries, in so many ways, I am confident we will succeed.

In reporting on our business in these quarterly updates, I am reminded of the ancient Buddhist parable of the blind men and the elephant that points out the limits of perception of point inspection and the importance of understanding the complete context. Rate of growth of revenues in retail and CPG applications is not a full measure of the value of our platform, per se. We have built a marvelous platform with your capital and I need a bit more time than these calls and presentations at investor conferences allow to describe and explain it to you. That is why we are holding a Capital Markets Day on March 11. In person attendance will necessarily be limited. However, the presentation materials will be posted on our website and the live remarks will be webcast. All the analysts who cover the company have been invited, along with industry analysts, academics, and press.

2019 marks our 20th anniversary as a public company. It's a good time for a comprehensive update. I am very much looking forward to the opportunity to better articulate the assets that we have developed, our strategies and tactics for developing markets, and the business and financial models for value realization from the investments.

That's it for our prepared remarks. Now, we will open the call to questions.

Questions and Answers:


(Operator Instructions) Our first question is from Marc Wiesenberg with B. Riley FBR.

Marc Wiesenberg -- B. Riley FBR, Inc. -- Analyst

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

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Sure. It's the maturation of the platinum and the market development activities that aggregated into a change in approach. So we've done enough of these now that are known in the industry and that we shared 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 of the 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 pilot our work. It's been in market now for a few years of Wegmans and some shorter times at some other retailers. And so the CEO of the company concluded there wasn't any need to pilot anything because he couldn't figure out what it is he wanted to learn in the pilot. So most folks just get going.

Marc Wiesenberg -- B. Riley FBR, Inc. -- Analyst

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, maybe the duration of kind of the sales cycle around bookings has changed relative to earlier periods.

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Yeah, this is 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, in tools, in training, in education, in aggregation, the relationships with suppliers, and in improving our understanding of the necessary business process changes, all of those things make everything more efficient. It is a natural part of market development for a new platform that is being introduced against a long-standing product, the conventional barcode in a complex business environment.

So, it would naturally be very slow and cumbersome fraught with fits and starts in the early days. And all of that gets mitigated with maturation of the platform and the market development to be surrounded (ph).

Marc Wiesenberg -- B. Riley FBR, Inc. -- Analyst

Great, thank you. And last one from 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 short term as well?

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

We've got great employees here. It's -- we have an extraordinary loyalty and low turnover, and people care. A lot of shareholders -- 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 continue as 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 doing. 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. And so in this current phase, it's about really orchestrating the accounts and 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.

Robin Knipp -- Janney Montgomery Scott -- Analyst

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?

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

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 anticipated, not because I have special knowledge, but just because I 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 the plastics pollution, and they're asking all of the industry to step up. And I've published as much as possible in our channels available to us the indications of the hue and 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, taggants and digital watermarking, are not necessarily mutually exclusive. So it may be that we both with, but I think that we are far superior means of recycling. So if you assume 440 million tons of plastics recycling a year packaging, the largest portion of that only 18% of plastics get recycling, the economic effect of improving that percentage recycle is massive, I can't, I don't know the qualification just yet, but it's a 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 just trying to attach the numbers when I don't, I don't yet have the model settled.

And we're engaging with many of the interest in Europe asking them the question you want the answer to. That's OK. So how do we, how do we price this. And my bias is -- 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.

Robin Knipp -- Janney Montgomery Scott -- Analyst

Very good. Thanks for the clarification, Bruce.

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors



(Operator Instructions) Our next question is from Ilya Grozovsky with National Securities.

Ilya Grozovsky -- National Securities Corporation -- Analyst

Thanks. I had a couple of questions. Number one, you gave out 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?

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

We do not specifically have it on our prepared remarks, but Barcode revenue was $600,000 in Q4.

Ilya Grozovsky -- National Securities Corporation -- Analyst

$600,000, OK. And then if you look at basically you've doubled the bookings in 2018 from 2017 on the Barcode side. What did you learn in that process that you will apply to 2019? And what kind of visibility, I mean, you obviously have a lot of ongoing partnerships going on in trials, what kind of visibility do you have on the Barcode side for 2019? Do you think it doubles again or even better or --? So just, those are my two questions, what did you learn and what kind of visibility do you think you have in 2019 on the Barcode side.


Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Yes, this is Bruce. So what we've learned and what we expect to continue to seek for some time in early market development is this lumpiness of bookings. We do expect the growth rate to continue to be high and escalate. But it will, we expect make a big move once we achieve one more tipping points. And I'll describe them as well as I can and I'll describe even greater detail in our next get together in March. But when 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 in consumer products and retail has sort of three nodes on it, retailers and consumers and consumer packaged goods company. So, everyone knows that. But what I've observed personally now is consistent with what I had originally theorized, and that is if we can move the industry leaders in retail and CPG to volume production, everything will change a lot in a positive OK.

So when is that point? I can't define it specifically, but I can tell you one of the evidence 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. So then that needs to get translated obviously into bookings and revenues. How long does that take? It should take continuously shorter as 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 EUS is a beacon of globalization. So when we can move the identified large customers we're working with, which you know 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 will that be next quarter or next year? I can't tell you for sure, it's up to them up them and 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 to make it happen as fast as I can. But, we have limited means to influence the pace.

Ilya Grozovsky -- National Securities Corporation -- Analyst

Okay, thank you.


Our next question is from Jeff Bernstein with Cowen.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

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

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Just a general update on Japan?

Jeffrey Bernstein -- Cowen Inc. -- Analyst


Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

We're trying to -- trying to figure out how to adequately resource Japan. We have a number of things going on over there and we're struggling with resource allocations to provide as much support as I would like to provide. And this quarter actually literally last week, 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 in March 11, I won't have the updates 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 shelf.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

Great. And then I know you've been trying to get native Digimarc discovery baked into IOS and Android. And do you have any update there, are you sensing any progress?

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Yes. I'd tell you a couple of things. One is that we have done some internal development work and demonstration of our ability to integrate into what's called in the Android marketplace the camera application. But from a user perspective, it's the camera itself, or the camera stack, and we're quite confident about our ability to implement. With respect to Apple, Apple is a little different situation. They're 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 AutoID must become a camera feature. And we certainly should be one of the means of AutoID 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 uses it. I don't know much about anyone knowing about it even. So it hasn't yet happened. I think it must happen. And I want 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.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

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

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

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

Jeffrey Bernstein -- Cowen Inc. -- Analyst

No, it wasn't you.

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Okay. That, well -- and again this is a probably a better subject for March, because I want to give you a short answer to it, but it's actually a fairly 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 their smartphones 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 a 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 in making the purchase decisions smartly while as also endorses as a means of doing that. And then there this initiative, GS1 Digital Link is worth some further reading for those who are interested in this subject. In that, it is an effort by GS1 Global, the parent of the member organizations to help the consumer products industry to provide what they call 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 smartphones.

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 are ready, and where everybody likes what we do, we just -- the industry needs to get that figured out. And it's a much larger matter than us.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

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

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

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 NRF. 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.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

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.

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Okay. Thank you. I'd just like to tie together some of the Q&A and the remarks here as I close 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 a 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's 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 describe 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 are not looking at all the things.

And all of those things are synergistic within the Multi-sided Platform model that is the foundation of our strategy. So those things aggregate value, they're not alternatives 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 I can to have us have a very successful 2019.

So thanks very much and goodbye for day.


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

Duration: 45 minutes

Call participants:

Bruce Davis -- Chief Executive Officer and Chairman of the Board of Directors

Charles Beck -- Chief Financial Officer and Treasurer

Marc Wiesenberg -- B. Riley FBR, Inc. -- Analyst

Robin Knipp -- Janney Montgomery Scott -- Analyst

Ilya Grozovsky -- National Securities Corporation -- Analyst

Jeffrey Bernstein -- Cowen Inc. -- Analyst

More DMRC analysis

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