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Digimarc Corp (NASDAQ:DMRC)
Q2 2019 Earnings Call
Jul 24, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Thank you. Good afternoon. Welcome to our conference. Charles Beck, our CFO, is with me. On the call today, we will review Q2 financial results, discuss significant business developments and market conditions and provide an update on execution of strategy. We have posted these prepared remarks in the investor relations section of our website and will archive this webcast there. Please note that we may 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 will also 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. 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 cause actual results to differ from expectations, please see the Company's filings with the SEC, including the Form 10-Q 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 as 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.

Charles Beck -- Chief Financial Officer, Executive Vice President, Treasurer

Thanks Bruce. Good afternoon, everyone. Q2 revenue increased 14% to $6.2 million from $5.4 million in the second quarter of last year. The increase was largely due to higher subscription revenue, which increased 45%, reflecting the impact of increased Discover and Barcode bookings over the past four quarters. Service revenue was up $200,000 during the quarter reflecting timing of program work with the Central Banks.

License revenue was down $100,000 due to lower royalty reporting from licensees. Discover and Barcode bookings during the second quarter were roughly 750% higher, coming in at $1.7 million from $200,000 in Q2 last year. Growth in bookings for the quarter included $750,000 from our contract with Walmart, signed on April 26th. The Walmart agreement and two other new contracts made up most of the bookings during the quarter.

As a reminder, we define bookings as the noncancelable fixed value of contracts. We expect to continue to experience lumpiness in quarterly bookings due to natural variations in timing and provisions of contracts during early market development, and expansion into adjacencies.

Gross margin for the quarter was 65%, up from 59% last year, primarily reflecting the impact of higher subscription revenue. Operating expenses increased by 5% from Q2 last year primarily reflecting the impact of routine annual compensation adjustments for our employees. We have kept headcount relatively flat over the last six quarters. We plan to make 5 to 10 new hires in the second half of the year to address growing demand and delivery requirements.

Net loss for Q2 was $7.9 million or $0.68 per diluted share, versus a net loss of $8 million or $0.71 per diluted share in the second quarter last year, reflecting higher revenues partially offset by higher expenses.

Our working capital position improved considerably. We raised $19.6 million of net proceeds under our ATM program during the quarter from the sale of 336,000 shares at an average price of $60.61. We incurred commissions and fees of $700,000.

There is $9.7 million remaining on the $30 million authorized under the ATM program. Given the great success in generating more working capital in Q2 and taken into consideration the current share price and program under way to explore potential investments as sources of capital, we don't plan to resume sales after the quarterly blackout period expires. We will exercise customary care in determining the best course of action regarding the remainder of the authorization should a change in relevant circumstances warrant resumption of sales under the program.

We invested $7.1 million of working capital during Q2, which was just above the top end of the range of $6 million to $7 million we provided on our last call. Working capital usage was higher than anticipated due to routine repurchases of our common stock in support of our employee restricted stock program at significantly higher prices than in prior quarters due to stock price appreciation during the quarter.

As its common with public company stock plans, we repurchase shares from employees to cover their tax withholding obligations, resulting in a cash outlay by the Company and forfeiture of shares by the employee. The higher stock price during the quarter resulted in a larger tax withholding obligation.

Except for the effect of share price appreciation on repurchases, cash usage would have been in the lower end of the projected range, around $6.2 million. During the quarter, we used $5.5 million of cash to fund operations and $400,000 for capital expenditures. We ended the quarter with $50 million in cash and marketable securities.

We anticipate cash usage will be between $7 million to $8 million in the third quarter, absent a significant increase in share price. Cash usage is expected to be higher than Q2 largely due to timing of vendor payments and customer receipts, which is consistent with our history where Q3 is typically the highest quarter of cash usage in the year. For further discussion of our financial results, and risks and prospects for our business, please see our Form 10-Q that we expect to file shortly. Bruce will now provide his comments on significant business developments, market conditions, and execution of strategy.

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Thanks, Charles. Now, we had a great quarter. Among the financial highlights, revenues up 14% over last year; subscription revenue up 45%; service revenue up 6%; gross margin up 6%; and commercial barcode bookings up 750%. We signed Walmart, we had a big design win in plastics recycling and increased working capital by $20 million through sales of new shares at an average price of $61. All those in the context of substantial appreciation in share price so far this year.

We rolled into the quarter on the heels of announcing a multi-year contract with Walmart to enhance product, fresh label -- fresh product labels and private brand packaging and provide enabling infrastructure to enjoy the benefits of our ICP with respect to these media.

Prompt high quality implementation of these programs is our top priority. The focus on the agreement is on fresh product labels. We are making good progress preparing for launch. A successful launch of our enhanced labels in Walmart US stores will include activation of Discovery throughout the relevant infrastructure at Walmart. Revision of business process where necessary, education of associates, and engagement with consumers. We have a solid plan to accomplish these things.

Walmart and other North American retailers are focused on waste and shrink reduction benefits of Digimarc Barcoded fresh product labels. These benefits implicate traditional markdown procedures, necessitating modifications to inventory management and POS software and business practices. We are mapping general structural requirements in our work with Walmart and other

early adopters. Benefits of faster more reliable scans in-aisle and at checkout are important. Nevertheless, domestic retail progress is centering on waste and theft reduction. We have a great development team leading the evolution of this important area of store operations modernization.

Success with fresh product labels at Walmart should create a waterfall effect on industry. Even before we launch with Walmart, momentum is building with three pilots in place, verbal agreement for pilots with three more retailers, and active discussions with several others.

Regarding Walmart private brand packaging, we have done considerable work training and orchestrating suppliers. Much of our pre-production work centered on grocery. Our agreement contemplates movement to production in all areas of general merchandise. In support of this objective, Walmart has provided general notification to its private brand suppliers that it wants Digimarc Barcode included in all private brand packaging. This is an epic moment for us. We have been given the opportunity to perform on the world's largest retail stage. Literally, all the world will be taking notice. As the world's largest retailer, Walmart has an enormous global supply chain. As we are stepping up to the world stage, I think you can appreciate better why I believe that establishing some equity-based strategic relationships with much larger IT suppliers makes sense at this moment in the evolution of our execution of strategy. It's a daunting task, but the synergistic effects of mobilizing this supply chain should be pretty amazing.

Globalization of our platform is becoming a reality. This is a really important step in execution of strategy for us. The third leg of our work with Walmart, building the pilot programs with leading CPG suppliers, is advancing. There are already some products on shelf and a growing pipeline. The primary interest of participating CPGs is improving on-shelf availability. Digimarc's role is to facilitate more timely and accurate information-gathering by store associates and robots. Our initiatives in manufacturing quality assurance and recycling add impetus to the decision by CPGs to begin enhancing products.

There is also continuing interest in fostering better consumer engagement and track and trace solutions. We, and our partners, have a couple of supply chain programs being developed to improve efficiency and accountability throughout the cycle. The growth in applications builds the case for enhancement. Over time, I expect we will overcome all resistance with compelling demonstrations of the value of modern package designs that incorporate Digimarc Barcode.

The penetration of Digimarc Barcode into the private brand portfolio of our first major European retailer is continuing apace. We are proposing that they consider adding fresh product label enhancement in anticipation of a European launch for the labels later this year.

Other European retailers are tracking progress. We are discussing potential pilots with retailers in Germany, Italy and the UK, to begin later this year. Given limited resources, we are focusing on a few key opportunities in Japan.

One of our strategic partnership objectives is get some help serving that market. We met with the leadership of our central bank customer consortium recently and reaffirmed our powerful collaboration to deter counterfeiting of the world's leading currencies.

As you know, we scored a significant win in technical trials for improving sorting of plastics in Q2. Digimarc Barcode offers the potential to more accurately identify plastics and other recyclates by enhancing the substrates, labels and shrink sleeves of plastic packaging to contain multi-application unique identifiers. The technical trials were led by a team of industry experts in a three-year program known as Pioneer Project HolyGrail.

Phase one was completed with a report on the technical evaluation. HolyGrail 2.0 is being formed, focusing exclusively on digital watermarking as the technology of choice for providing a unique identity to plastic products and their labels and for enabling the sorting and recycling ecosystem. There appears to be strong interest from phase one participants to continue. Outreach is under way to increase participation to include more CPGs, both global and private brands, and numerous relevant trade associations. Approaches to governance being discussed include trade association leadership and/or a consortium approach such as what is in place for our banknote counterfeit deterrence program. In any case, we prefer a long-term business model in which an administrator oversees development of global standards, regulatory frameworks, and license administration.

In this model, we would supply access to our platform and development, testing compliance, and consulting services, much as we have been doing for the last 20 years to deter banknote counterfeits. Unlike that program, where license rights were liquidated early in the development cycle while we were a fledgling start up, we anticipate ongoing substantial license income from use of our Platform and ancillary income from other applications in the demand and supply cycles that are enabled by the package enhancement.

There is considerable regulatory and market pressure to continue to make rapid progress in reducing plastics waste. European authorities have led the way in establishing aggressive targets and backing them with financial penalties for non-compliance. Industry leaders are responding with promises of progress to forestall or mitigate the effects of increasing regulatory pressures.

Improving plastics recycling is an important new opportunity for users of our Intuitive Computing Platform, extending the range of applications to provide benefits throughout the demand and supply chains, from birth to rebirth. In addition to intrinsic benefits of contributing to reduce plastics waste, this new area of business provides an additional point of engagement with brands, driven by compelling external pressures. Each additional application benefiting the product life cycle increases the motivation to make Digimarc Barcode a required feature of product packaging design.

Our current recycling market development activities include, seeking funding for R&D to demonstrate industrial capability and tosupport supplier development and testing of solutions Synchronizing our investments with legislative and regulatory waves, rising consumer consciousness, global commitments by brands andretailers, and infrastructure developments assisting in formation of HG-2.0 and creation of a governance structure forlicensing and program management serving as technology provider and trusted advisor to the HG-2.0 consortium, coordinating closely with the program administrator.

Working with industry to enhance all key types of plastics and enabling the waste sorting industry ecosystem. All the time fielding inquiries that is continuing to educate and evangelize to key industrytrade groups and regulatory bodies. Securing funding is our number one priority. Such funding would allow us to increase the resources that we can dedicate to these projects, accelerating the timeline by which the recycling ecosystem can incorporate and deploy the platform.

We are pursuing many potential sources, including grants from government agencies, dual systems operators, trade associations and foundations involved in addressing the global plastics crisis, HG-2.0 member and license fees from early adopter among suppliers and end-users. Once adequate funding is secured, we have dual development thrusts in enhancement and discovery. Several CPGs are already engaged on the enhancement side. We are engaged in discussions with numerous plastic packaging suppliers as well. TOMRA, the largest sorting equipment supplier in Europe, has been a great partner so far in demonstrating improvements in sorting of waste streams.

The European community has been the point of the spear in addressing improvement of recycling. Nonetheless, we are encouraged -- encouraging some key retailers, CPGs and their suppliers to develop a parallel initiative in America leveraging the foundational work already done in Europe. There are some packaging projects in process where the Circular Economy goals could be integrated into undisclosed work in process for other supply chain benefits.

The work we are doing in Europe should translate well into the US market and other geographies. We are aware of leading indicators of a shift in the US political perspective regarding plastics and recycling. Two members of Congress recently announced their intention to introduce comprehensive legislation to address the plastic waste crisis. They released an outline of the bill last week that they intend to introduce in the fall.

Stakeholders are invited to submit comments by August 21, we intend to participate. While the timing and substance of legal changes are uncertain, increasing government activity like this will fuel discussions with affected parties who seek to deter or minimize legal intervention through promises of industry self-regulation and want to be prepared to comply when and if legislation becomes effective.

There is a busy schedule of upcoming industry events that will provide in our prepared remarks for those who want to continue to monitor developments. In another area of early market development there are two ambitious supply chain initiatives under way. And as you know, WestRock is engaging prospective customers with Digimarc enhanced, plastics and labels.

They are now seeking alignment for moving growers to orchestrate a modernization program from farm to home. We have been doing our own deal with a major produce supplier and its technology providers along similar lines. We are now seeking funding to advance pilots and production. These are very interesting and complex problems where our platform may materially improve supply chain performance. These applications have not generally been anticipated or modeled in the public equity market. If successful, moving to the next stage with either or both of these programs, we should be able to provide details regarding total addressable market estimates and business cases soon.

I mentioned in our last call that we are seeing their growing interest in the audio water-marking for authentication. Advances in technology are undermining the trustworthiness of all media. In fact, in media that are relied upon for decisions of great importance too society and the economy. Digimarc Barcode is uniquely qualified to help. Digital watermarking has been proposed by several

commentators as a means to mitigate DeepFake media threats. Digital watermarking is specifically mentioned in draft legislation. We are working with our government relations team to educate policymakers about the technology and its potential contributions to mitigating these threats. We are also engaged in discussions with a concerned source of political news and relevant technology suppliers to assess how our Platform might be employed to address their concerns. We see DeepFakes as a leading indicator of the need for all media having a digital identity. It is the dawn of an era in which all media can be photoshopped, undermining credibility in a frighteningly pervasive manner.

Momentum is picking up in many different areas of engagement now that we are moving to production with industry leaders. These predicted indirect group network effects are contributing to the tipping point to great value creation for our business and foreshadow our beginning to realize economies of scale. Our supplier partners should now begin to assume more responsibility for application development and maintenance, and system integration. We must continue to focus most of our investment on improving basic functioning of the Platform and the quality of our support for these suppliers. So the key takeaways today include the Walmart contract signaled achievement of one of the key milestones of our strategy.

We are making good progress in our programs there. Good work in these areas will lead to more opportunity. The key supplier program represents a proving ground and on-ramp for CPG adoption of our Platform. Our current generation of fresh product labels enables dynamic pricing in physical retail, offering to reduce food waste, provide unprecedented low prices to value conscious consumers, and increase profits simultaneously. The recycling initiative bookends manufacturing quality control in demonstrating the extraordinary full product lifecycle support that our Platform can provide to consumer product manufacturers.

We are resource constrained in serving existing demand. We expect demand to increase significantly. Equity-based strategic partnerships are attractive as a means to accelerate growth. On the Financial front, bookings grew 750%. And we raised nearly $20 million of working capital at more than $60 per share.

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

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Our first question comes from the line of Ilya Grozovsky with National Securities.

Ilya Grozovsky -- National Securities Corporation -- Analyst

Thanks, guys. So I just want to be a little relevant to the Walmart a little bit. You guys have -- you announced that about three months ago. So, from that time other than low revenues from Walmart. What -- how many of the Walmart suppliers have come to you and said they want to work with you and integrate it into their products, or can you give us a little bit of color on kind of the derivative plays from the actual Walmart? Thanks.

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Thanks, Ilya. That's -- in the years that's more complicated than you might think. So let me explain why and then tell you what I can tell you. So as we advance in the execution of strategy, well, we plan for suppliers to take over more of the activities involved and deliver services based on the platform so many suppliers and what you call end users or CPGs in the case of packaging would go to their suppliers of pre-media services and so we might not know all of them that are being contacted.

There was a general notice sent out to all private brands suppliers for Walmart recently. I don't know how many there are, I would imagine 1000s or 10s of 1000s and so the ecosystem is filling up with awareness of the need to learn more about the job market and to get on board.

So we've seen a rising, I'll call the rising temperature, if you like, throughout the supplier community associated with getting going on Digimarc Barcode because of the size of Walmart, the awareness becomes extremely broad. All of those suppliers supply other customers than Walmart. And so that means that as they become more expert, they can provide operating leverage into account acquisition in the rest of the industry that's why I say it's such an epic moment for us.

So I don't have a number and I can't have a solid number for you but there is a lot of interest, a lot of communication going on across the Board, in the packaging area, on the fresh label side of things the community of enablers is the printer companies and that we're working with all of the major suppliers in that regard. So it wouldn't be a wave of additional printer showed up, was there, well, we are the industry leaders already engaged.

With respect to the discovery side of things, that is the scanner vendors and PLS vendors and so forth. Again, we are already engaged with the major suppliers, major global suppliers we are trying to figure out how to deal with some inquiries from geographies outside of, the core geographies that we've targeted. So, we're still struggling a bit with how to deal with those situations, but we've found some situations that looks like we may be able to provide the platform benefits without substantial direct involvement, which again would be consistent with a mature state of the evolution of the model. But were I think, just getting to the point where we might be able to contemplate such things.

Ilya Grozovsky -- National Securities Corporation -- Analyst

Okay. Thank you.

Operator

Our next question comes from the line of Jeff Van Rhee with Craig-Hallum.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Got it. Great, thank you for taking my questions. So several for me was just -- I guess just sort of a long lines the prior question, when you look at the pipeline and the momentum with respect to that, the largest potential revenue impact, how -- where do you see the most momentum? I mean, I think you gave a lot of color, but I'm just trying to mentally rank order. I mean, you got retailers as I would break it down, you've got your retailers, you get your CPGs you may be doing it for their own packaging. You may be had CPGs are trying to do it for production, packaging, filling type engagements or recycling. Those seem to be kind of the four core use cases. So I guess to simplify the question, how has the pipeline of those to -- use cases changed in the last six-months?

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

It's gotten considerably more complicated, in the past six months. So, the growth can come from many different places and in all of them out there risk with respect to timing. But, we clearly now are engaged with the industry leading retail and so expect more retailers to be coming on board. They can come on board with respect to packaging or labels or both. And you know, the economics of each of those offerings.

We have a couple of supply chain projects in the works that weren't contemplated much longer than six-months ago. Those will have some financial impact. We presume our position on recycling right now is we want someone to be put in some money. And if we're successful, that could have a significant impact as well.

And then the CPGs are developing more interest as I note here, we have this model for the platform license fee associated with the SKU of $50 per year where as more and more value gets added to that basic enhance, the $50 because more and more tolerable on the decision to move to the mark, easier to make and so that will continue to accumlate, and as it does, I don't know what effect it will have in terms of the speed at which these things are accomplished. And we have some areas, new areas that are opening up that may involve additional revenue opportunities. Layered on top of all of that is the ongoing examination of opportunities for equity based strategic relationships and those relationships may have income aspects to them. I expect that we would prefer that in all cases and so that may have another impact and so there is a cumulative effect of the growth of the use of the platform here consistent with a notion of network effects that is going on this year so it's a very interesting year, but it creates a larger opportunity but greater ambiguity in terms of sort of where the largest share comes from. So I hope that answers your question directly, Jeff.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Yeah. I appreciate that. Just, I guess, sort of pivoting. You covered a lot of content really quick. So at the risk of being redone, can you just go back and revisit the ATM you paused it. I mean, you used some you still got some remaining and then in several cases around the plants, take some of the other similar initiatives you mentioned in a number of occasions, strategic funding you clearly are emphasizing there but just kind of revisit that decision to pause the 18Ms, you know, why now is is definitely the time around strategic and then you mentioned specifically as relates to the WestRock instance or others that you might seek funding for that specific defense production in that specific instance, like how narrow could the strategic funding be in particular, use cases just maybe fill in a few gaps there?

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Okay, there a lot of questions, I'll try to keep my answer manageable. So we don't have any plans to resume the ATM at this time and it's a combination of circumstances the share price, the extraordinary success we had during Q2, the balance sheet condition, the spend rate that we're operating under and the program to engage strategic investors, plus these new initiatives, market initiatives where we're going to see how it works here we're taking the position that show us the money.

And again, this is all, if you like, a natural development in the evolution of the execution of strategy, because this is a platform that we're providing and so as we become more obviously the platform supplier and we engage more company and investing their capital to build on platform, we will gain a lot more financial leverage. And so it's a little hard to characterize it just yet. But as I said, I think we're getting to a point where we may be able to model some things better before year-end. And we want to find more business with existing customers as well. And that, of course, is dependent on how well we execute on the business we have which were very focused on doing. So with all that context and continuing the ATM, just because we have authorization didn't seem appropriate. We we would just pause for a while here and then carry on with all of these other opportunities to find capital from income sources and investment sources.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Great. Thanks for taking my questions.

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Jeff Bernstein with Cowen.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

Hey, Bruce. Couple of questions for you. So you guys just did a webinar with Adobe about brand image protection and tracking. And I was wondering how old that relationship is/or what exactly is going on with you and Adobe, if there's anything formal there? And then I had a couple others.

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Well, we had relationship from Adobe forever, and it's always been a healthy relationship, although not at the scale that we think it will be someday. And so we're we're engaging with them on a number of different activities when you saw, it had to do a digital image, copyright protection and license management. And so, you know that they're very important to us and they're the foundation of all of our image enhancement tools. And so we will continue to work hard to engage more closely with them. And I'm excited about what the increased collaboration could mean for us if we can convince them to allocate resources in our direction. They're being very successful, I admire their work are quite awesome. And we want to demonstrate that we're a worthy partner in many aspects of their business. So we think that we have relevance in lots of areas. As I indicated in the capitals, they capital presentation. So you can imagine that we're continuing to work on developing a broader relationship with them.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

Great. Great. And then just give us an update on the hangtags opportunity? What's going on with the current customer and anyone else looking at that?

Charles Beck -- Chief Financial Officer, Executive Vice President, Treasurer

Yeah. We're continuing to deliver to CostCo. And you might imagine we're suggesting some other general merchandisers. So that's all I can say about others at this point in time there's nothing [Indecipherable].

Jeffrey Bernstein -- Cowen Inc. -- Analyst

Got it. And then to the extent that people are able to find non-private label products in Walmart that are Digimarc labeled, are those actually in production or could it be that those are part of the pilots?

Charles Beck -- Chief Financial Officer, Executive Vice President, Treasurer

Well, the pilot is production is limited production. So the way that all of the companies that we deal within consumer products operate retailer and manufacturers is they sort of three stages with a new technology records as the -- if like, laboratory testing, which can go to some stores in a very limited fashion and that's called proof of concept and then pilot means limited production. So it's the intermediate step on the way to full production. The reason that they do a pilot is to determine the effects of scaling on what was demonstrated in the proof of concept.

So, the products that are in the stores are real products and real production, but just their limited production may be limited in the sense of a particular skill or in some cases where channel segmentation is common. They couldn't be delivered to a particular retailer and so a big retailers like Target, Walmart and Kroger and Costco and so forth some of the products they have are built specifically for them.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

Got it. So just because we found a product from a CPG you haven't talked about before does not mean that is a win yet that could still just be in a pilot?

Charles Beck -- Chief Financial Officer, Executive Vice President, Treasurer

Walmart, I think we earned the business ever day. So I do think we will become routine and standard as we have most of the areas in which we operate historically. So, for a while I would say that would be true everywhere there could be a reversal, but I think that's unlikely.

Jeffrey Bernstein -- Cowen Inc. -- Analyst

Okay, that's great. Thanks very much.

Charles Beck -- Chief Financial Officer, Executive Vice President, Treasurer

You're welcome.

Operator

Our next question comes from Robin Knipp with Janney.

Robin Knipp -- Janney Montgomery Scott -- Analyst

Hey, Bruce, thanks for taking the question. So, Larry Logan mentioned in his recent remarks at a conference that the next step of the Holy Grail II in total can take 6 to 12 months I know there's lots of pressure from the industry to increase the recycling rates, but could this really be ready and could we really have products ramping into production by this time next year and I have one follow up after that?

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Well, you know, Larry is talking at an industry event, I think he's trying to encourage everybody to hustle. I wouldn't take that as a project timeline that you can bank on. We'll go as fast as we can go. The hang up for us is, whether we build your capital in it or someone else gives the capital to invest it. My preferences toward B. So we're not speeding things up right now. We're kind of impeding progress as we look for capital. And by capital I mean the primarily income, but it could be income and/or investment capital from the recycling industry. But we want them now to say, Okay, you have your design win, be a large group of stakeholders have determined that you have relevance. So we're saying, OK, fine. Whereas show us the money.

And that will not speed things up until the money is secure. So, again, I wasn't present at Larry's presentation, but I want you to be conscious of our approach to this particular market opportunity. We think it's a very large one and a very good one. We have been able to make the progress we have and enjoy the access to capital that we've enjoyed because we're prudent in the scope of our activities and recycling is a big business with lots of players and much of the activities in Europe, which is remote and serviced by a small office of ours. So we'll go as quick as they want to go. My guess would be the fairest answer I could give you.

Robin Knipp -- Janney Montgomery Scott -- Analyst

Okay. Fair enough. And then just as a follow in the same vein. I understand there are many, many different ways to meet around access to your platform. As far as the recycling app is concerned. But on the Q1 call, you said that there was no reason to think that the per SKU cost would be less than $125. just still hold true at this point.

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Yeah, it's a straw man. Yeah, again, we're working for business and depending on what kind of, -- I call the governance structure, I understand where I'm getting that -- recycling needs global standards and it's populated by very large companies. And I don't think we wanted to do it as a hobby. And so we're trying to talk various very large companies and trade associations and government agencies into finding some collaborative structure where we can license our platform and then be a service provider. I think that's the ideal model, but if they want to give us enough money to, grow a big head count associate with serve in that application market, fine. I mean, it's OK it's just not our preferred approach. So in that case, then we would enjoy profitable participation very early. And could develop a very large income stream without making a large investment so that's the preferred approach at this point in time, whether that is metered at the $125 or $150 a SKU or so much per ton or you know a license based on scale of business or recyclable material, there's a whole bunch of other models that couldn't be applied, but I think as a means of estimating addressable market that's fair. And that's what I intended to say previously and still believe to be true.

Robin Knipp -- Janney Montgomery Scott -- Analyst

That's great. Thanks, Bruce. Appreciate the color.

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

You're welcome.

Operator

Our next question comes from the line of Jeff Van Rhee with Craig-Hallum.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Great. Just a couple quick follow-ups, Bruce, just first to the last question. Just to be clear, your vision is to -- you are look for collaborative structure that can license, you don't really want to be a service provider. Just expand on that because I would assume that's what you're doing, right. Licensing the technology when you say be a service provider, are you talking about actually providing the process help to to get, you know, sort of packaging migrated over to the solution or some other variation of service. Maybe just clarify what you mean by service provider?

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Yeah. There's called ambiguous space between general licensing on the platform and the specific applications supporting recycling the plastics. In that space someone needs to determine how to effectuate the enhancements in bolts [Phonetic], Okay. Because that's how we will get into plastics. Well we're not experts in bolts and there are probably 1000's of providers using them. So who wants to do that work is an example of what's in that interstitial where I would like someone else to go and then we someone needs to build the firmware and the I'll call the module that enables the improved sorting of material in waste streams in large recycling facilities and there are at least 10s of 1000s of recycling facilities in the world and there are major suppliers like [Indecipherable] and major players like waste management who buy equipment and supply equipment in that areas. Well, I would prefer not to learn about all of those things, I would prefer to have someone developing the requirements giving them to us. Having us do some R&D and delivering back basic software development kits into the marketplace as opposed to us building that software. So those are areas where there's a quite a fairly wide range of involvement that is possible. So we're arguing for minimal involvement in those processes and yet what we found in the early stages of market development is that the end users, the stakeholders, the primary sources of income one of all because we're the experts and they will not hold us accountable. And we want to be involved because we want to ensure high quality. Over time, that shouldn't become less relevant. That is, that we shouldn't be able to build great tools for the suppliers in all kinds of product markets and let them adapt them to the requirements of that market. So that's the ambiguity right now is who's going to do that network in the middle there.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Okay. Great. Yeah, that makes sense. So then just the second, in fact the bookings number, I mean, you went through it to get the bookings numbers said yet two other new contracts in the quarter. Obviously, I know you always protective of names. We talked about some incremental detail, geography, use cases as retailers, this CPG, you know, a little color on the two incrementals?

Charles Beck -- Chief Financial Officer, Executive Vice President, Treasurer

Yeah, I don't think we're ready to do that. Yeah, we expect to be publicly disclosing information before year end. In those relationships, but I don't want to start down the path of trying to facilitate guessing on it. So, unfortunately I don't think --

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Without talking vendors or signs or anything else, are you able even just to give a, at least some sense of what the use case is, whether we're talking CPGs or its a retailer, formal retailer, ITM front, check out I mean, anything along those lines?

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

I think, I prefer to wait.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Got it. Okay. Thanks.

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Okay.

Operator

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 -- Chairman of the Board, President, Chief Executive Officer

All right. Thank you very much, everyone. We appreciate your continued support and confidence in the company and look forward to talking to you again soon.

Operator

[Operator Closing Remarks].

Duration: 45 minutes

Call participants:

Bruce Davis -- Chairman of the Board, President, Chief Executive Officer

Charles Beck -- Chief Financial Officer, Executive Vice President, Treasurer

Ilya Grozovsky -- National Securities Corporation -- Analyst

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Jeffrey Bernstein -- Cowen Inc. -- Analyst

Robin Knipp -- Janney Montgomery Scott -- Analyst

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