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Digimarc Corp (NASDAQ:DMRC)
Q2 2020 Earnings Call
Jul 29, 2020, 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 Chairman and CEO of Digimarc, Mr. Bruce Davis. Please proceed, sir.

Bruce Davis -- Chairman and Chief Executive Officer

Thank you. Good afternoon. Welcome to our conference call. Charles Beck, our CFO, is with me. On the call today, we'll review Q2 financial results, discuss significant business developments and market conditions and provide an update on progress and execution of strategy. We have posted these prepared remarks in the Investor Relations section of our website and will archive this webcast there later.

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 also will discuss from time-to-time, the information provided to us by partners and actual or potential customers. 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, risk, 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 reference is not incorporated by reference and you should not consider it part of this presentation. We do not verify nor vouch for such information.

Charles will now comment on our financial results, then I'll discuss significant business developments, market conditions and execution of strategy. Charles?

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

Thanks, Bruce. Good afternoon, everyone. Revenue for the second quarter was $6.5 million, an increase of $300,000 or 5% from Q2 last year. Service revenue increased 9%, due to growth in services provided to government and retail customers.

Subscription revenue was flat year-over-year. Subscription revenue would have increased $250,000, if not for the renegotiated contract with our supplier partner that we discussed on our Q1 earnings call.

Revenue from retail was up 10% to $1.6 million, driven by growth in service revenue. Revenue from government was up 5% to $4.1 million, also driven by growth in service revenue, while revenue from media was essentially flat at $900,000.

Retail bookings in Q2 were $1.1 million, down from $1.8 million in Q2 last year. Bookings in Q2 last year included a large multi-year committed contract, which accounts for most of the variance. Bookings in Q2 this year included two notable developments. First, we generated our first two bookings for solutions using our variable data printing software, one for a traceability use case and the other for a brand authentication use case. While these two bookings contributed only 10s of 1,000s to our reported Q2 bookings, we anticipate they will become larger contributors to bookings in the second half of this year and thereafter.

Both opportunities include variable fees to us based on units produced versus an upfront fixed fee, which mitigates amounts included in bookings. These are partner-led initiatives, whereby charging per unit is preferred to align our cost with their existing business models. I anticipate we will see more opportunities like these in the coming quarters as our business partners are becoming more engaged in selling Digimarc-enabled solutions. These two use cases are also repeatable among a large base of prospective customers.

Second, we closed our first four paid contracts for recycling use cases during the quarter. Two of the contracts provided for enhancement of product packaging, one for consulting on optimizing the reading environment for plastic sortation and the other on enhancing plastic packaging molds with Digimarc Barcode. The bookings impact of these four contracts to Q2 was not significant, as the fees are variable or dependent upon meeting milestones, but we anticipate they will grow in significance going forward. These contracts, along with other opportunities we are seeing in the sales pipeline, are encouraging signs of real interest in investing in recycling use cases.

Gross margin for the quarter was 67%, up from 65% last year, largely driven by an increase in service margins. Service margins were 59%, up from 53% last year, primarily due to a favorable mix in billable expenses with higher labor and lower non-labor expenses. Labor expenses have a much higher margin than non-labor expenses in our service contracts. Subscription margin was unchanged at 80%.

Operating expenses were $11.9 million, a decrease of 2% from Q2 last year, mainly due to lower travel, consulting and marketing costs. Operating expenses were down sequentially from last quarter, dropping $1.1 million, as we successfully executed the cost-cutting measures that we shared with you on the last earnings call. Expenses ended up even lower than the $12 million to $12.5 million range we guided to as we identified additional expense reduction opportunities in non-essential areas.

We are further decreasing spending by virtue of some corporate restructuring that is under way to improve our execution of strategy. These changes will further reduce our operating expenses by reducing headcount by approximately 7%. We expect to incur severance costs of $900,000 during Q3, consisting of $400,000 of cash-based severance and $500,000 of stock-based severance. Annual operating costs are expected to decrease $2.3 million as a result of these reductions, consisting of $2.1 million of cash-based compensation and $200,000 of stock-based compensation.

We anticipate operating expenses in the third quarter to be between $12.2 million and $12.6 million, which includes the $900,000 of nonrecurring severance costs I just mentioned. We expect cash usage in the third quarter to be between $6.5 million and $7.5 million, including $400,000 of non-recurring cash-based severance. We will continue to closely monitor our product and financial markets and our sales pipeline in relation to our working capital on hand in managing our rate of investment and allocation of resources.

Net loss for Q2 was lower than last year at $7.5 million or $0.62 per diluted share versus a net loss of $7.9 million or $0.68 per diluted share in the second quarter last year.

We used $100,000 of cash and investments during Q2, well below the low end of the range of $1 million to $2 million we provided on our last earnings call. Our cash usage was lower than anticipated as we reduced and deferred spending where we could as well as restructured some vendor contracts.

As noted on our Q1 earnings call, we received a $5 million Paycheck Protection Program loan in April. We spent the entire amount on qualified expenses as defined by the Paycheck Protection Program and plan to file for forgiveness of the entire $5 million loan once the portal to apply for forgiveness is available. Once we file, the bank has 60-days to review our application and then the Small Business Administration has 90-days to approve our application for forgiveness.

We ended the quarter with $30.5 million in cash and investments. We did not raise any capital under the ATM program during the second quarter. We filed a new Form S-3 Registration Statement with the SEC in June for $100 million as our prior Registration Statement was expiring. The old Registration Statement had $49 million remaining for future issuance that has now expired. We continue to believe having a Registration Statement on file with the SEC is prudent to allow us maximum financial flexibility.

We plan to file a Prospectus Supplement to our Form S-3 Registration Statement soon that will allow us to continue to utilize the ATM program, which has $9 million available for future issuance. This filing is purely an administrative requirement as the ATM program was initiated on what is now an expired Registration Statement. We will exercise customary care in determining the best course of action regarding the remainder of the ATM authorization. We have also reengaged on strategic financing in parallel. 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 strategy.

Bruce Davis -- Chairman and Chief Executive Officer

Thanks, Charles. We had a great start to the year and then came COVID-19. The pandemic continues to cast a shadow on our economy and society. Our company has responded as well as it can to the pandemic crisis so far. The first stage of response focused on health and safety of our employees. The next stage focused on productivity of an entirely remote workforce, providing tools, training and support to optimize the work streams. Both stages have been executed well.

In parallel, we continued to grow revenues, reduced expenses and secured interim financing via the Paycheck Protection Program. The loan gave us time to better assess the impact of the pandemic on our business before making significant changes. In making that assessment, we determined that we can realign and streamline our operations to better support continuing development of our target markets in light of maturation of our platform and growth of the partner ecosystem.

We are restructuring certain areas of operations to improve productivity, communication, time to market, and support for sales and partners. These changes better align engineering, product management, client services and sales with the principal components of our platform, provide clear ownership in product development of our contributions to solutions addressing the needs of identified customers and prospects and simplify the relationship between sales and product teams. These changes will further reduce the company's operating expense run rate. We are determined to run as efficiently as possible in this challenging environment, taking advantage of efficiencies as our platform matures.

And as I noted in our last call, I believe that the health crisis expands and makes more obvious the long-term benefits of our platform for retailers and brand owners, but we are also finding that it creates friction in sales for both us and our partners. We felt the effects in Q2 as we experienced delays in running pilots and closing deals affecting several important in-store programs and recycling initiatives.

As we often note, bookings will continue to be lumpy. However, we are mindful that uncertainties in the general economy, due to the pandemic may inspire delays and more entropy in bookings and other short-term measures of performance. Grocery retailers have been working around the clock on urgent accommodations to implications of health crisis. We are assuming that these pressures will persist for a while, contributing to friction in closing new retail business and a change in mix of fixed versus variable contracts due to these circumstances, for at least the remainder of 2020.

The crisis is causing everyone to be cautious about long-term commitments. The most obvious place where this will be evident is in bookings, where a preference for pay-as-you-go will diminish the value of bookings as a leading indicator of revenues until the crisis passes. Nonetheless, we will continue to report this important measure of performance.

In retail, we are continuing to scale the Walmart private brand program, have entered into additional statements of work regarding in-store marketing and anticipate enhancing the annual toy catalog again this year. The launch of thermal labels has been paused by Walmart due to the need to focus on means to accommodate effects of the pandemic. There are ongoing discussions with other major retailers, all of whom are doing their best to manage the near-term changes required to operate safely and efficiently. Solutions based on our platform take time to provide maximum benefits. The more urgent matters are taking priority for the time-being.

I noted in the last call that we were witnessing increases in both demand and deferrals, reflecting a sense of urgency among some prospects and distraction from other priorities for others. This continued in Q2, with the friction in retail noted above. On the other hand, we witnessed a meaningful uptick in demand among brand owners seeking improvements in supply chain management, particularly involving serialization. Serialization is emerging as a significant new source of demand. New approaches for applying Digimarc post-print, including laser ablation and marker-coder overprinting, are opening doors for Digimarc and allowing us to leapfrog the slowly evolving digital printing market that has previously governed the pace of adoption of our platform for serialization.

The primary solutions we enable are traceability, brand protection and food safety. We have several actual and pending customer engagements with prominent brand owners. Our work with initial customers indicates our superiority over QR codes, Data Matrix, and GS128 in first-pass read rates, lower ink use and faster scan speeds. We are also bringing our experience in security printing to bear on the design of counterfeit deterrent strategies for customers.

We have discussed previously the strong evidence we have of an important role to play in recycling and sustainability, more generally. It is a massive long-term opportunity for the company. The nut we must crack is funding early market development. We finally saw some encouraging signs of this starting to happen during Q2, with the bookings that Charles mentioned earlier.

Plastic is going to be around for a long time. It's a very useful product with the unfortunate character of not being very environmentally friendly. The use of plastic has expanded dramatically with the pandemic, aggravating damage to our oceans, waterways, landfills, atmosphere, food sources and drinking water. The crisis is real and getting worse. The economic calculus is becoming clear to us. The glut of cheap oil undermines the economics of proposed solutions.

However, the health and quality of life costs are large enough for government to intervene and counterbalance the market economics. The pandemic is creating heightened concern among many consumers about health and safety, contributing additional motivation for brands to adopt mitigation strategies. We are witnessing increased pressure on brand owners from both these sources of influence.

Trials last year demonstrated that enhancing plastic packaging with Digimarc Barcode holds promise to greatly improve the range and accuracy of identification of materials in sorting and recycling facilities. Industry coalesced around the formation of HolyGrail 2.0 to study the path to commercialization at scale. Progress was slowed during the first half of the year of 2020, by operational and budget pressures triggered by the pandemic. Onset of the health crisis during Q1 affected progress and funding for enhancement of packaging and detection investments by dual systems companies, MRFs and manufacturers. It also slowed the launch of HolyGrail 2.0. There is good news of late.

The pace is picking up. We are working with eight global brands so far to enhance packaging in support of recycling and sustainability initiatives. P&G has publicly announced it's moving forward with products in several of their brands for initial distribution in Germany and the UK. We expect more CPGs will go live in 2020. We are also collaborating with two of the largest global manufacturers of high-speed sortation equipment, which together provide over 80% of the lines in recycling facilities globally and we're in planning and development of prototype detection systems for use in industrial trials.

Importantly, HolyGrail 2.0 formed in July. We expect more news about this later this year. We're engaged with government and industry in there countries to launch Golden Thread projects, which are intended to provide commercialization models for brands, retailers, manufacturers, dual system operators, sorting facilities and other ecosystem players. These proposed projects aim to test and develop strategies for better recyclability, collection, customer education, sortation and recovery to enable true circularity.

Operational and funding problems largely driven by the pandemic led to a deferral of two funded projects we had anticipated would start in Q2. We are hopeful for more meaningful signs of progress in Q3. We have made progress opening a second front in North America. Early promising signs include an invitation from The Association of Plastic Recyclers to join a new committee of material recover facility operations, support to the Consumer Goods Forum Plastic Waste Coalition of Action with a membership that includes more than 24 brands and 10 retailers from across the globe, including Walmart, Mars, Merck, Coca-Cola, Pepsi Cola, Nestle, P&G, GSK, Henkel, Unilever, J&J, Colgate, Mondelez and so forth.

The PPP loan from the federal government served its intended purpose, giving us time to assess the impact of the pandemic and adapt to its likely effects. Given the important role that our platform can play in health, safety and efficient retail and supply chain, I expect that the pandemic will change shopping in ways that will encourage adoption as we help retailers and consumer brand owners adapt to the new normal where reliable, efficient auto identification is a cornerstone.

In the short-term, health and economic uncertainties make judging the pace of change difficult. We are managing our working capital carefully, encouraging and facilitating extraordinary efforts by our team and doing our best to articulate and deliver the extraordinary value of our platform to customers and suppliers. Secular trends in digital transformation of businesses and increasing evidence of the need to move beyond the UPC have been accentuated by the pandemic. Our long-term prospects are brighter than ever.

The key takeaways from the quarter are: revenues and EPS exceeded analyst estimates for the second quarter in a row. We received a Paycheck Protection Loan for $5 million and will be applying for forgiveness of that full amount. The net change in cash was less than $100,000. We made significant organizational changes to improve performance. The annual operating costs are expected to decrease by $2.3 million as a result of these changes. The key market themes we're observing are sustainability, supply chain visibility and brand protection. So while retail is still scrambling to deal with the coronavirus, demand from brand owners increasing.

Thank you for your support of our mission and confidence in our ability to achieve it. We wish you all the best in these difficult times. In closing, I'd like to point out that D.J., our Head of Investor Relations, is getting settled in. With his help, we have revamped the Investor Relations section of our website; please check it out, and we welcome your feedback.

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

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] You do have a question in queue from Jeff Bernstein with Cowen.

Jeff Bernstein -- Cowen & Company -- Analyst

Hey, Bruce and Charles. Yes, a couple questions for you. One, could you just go back over, you talked about the serialization demand and you mentioned some technology there? Can you just go back over what that is exactly and what's happening there?

Bruce Davis -- Chairman and Chief Executive Officer

Yes. So serialization has always been believed to be a key differentiator of our platform in relation to alternative data carriers, but the implementation was impeded by the progress of digital printing in relation to traditional offset printing. And so we were kind of gated by that. Well, in the past year, we have now reached a stage of being able to deliver serialization through what's known as industrial inkjet or marker coder technology. And so we now can serialization at very large numbers, much larger than those that would be economically feasible using the digital presses.

Second area of serialization is our work in lasers and what's called a laser ablation or laser etching. That is an amazing area of development, not only because of its ability to deliver serialization, but also the promise, perhaps, of label-less containers, plastic containers, which would reduce contaminants and dramatically reduce the cost of production of those items in a way that would be consistent, we think, with the evolving consumer preference for allowing the planet to remain habitable. So we're working with some suppliers and customers on laser engraving of plastic materials. We also have a project we believe will begin here in Q3 that does not involve plastic, but is involving the use of lasers for serialization of products.

Jeff Bernstein -- Cowen & Company -- Analyst

Got you. And have you been able to prove out the laser etching on plastic yet or is that still a concept?

Bruce Davis -- Chairman and Chief Executive Officer

It's more than a concept, but I wouldn't call it proven out in terms of commercialization. But it works. At this stage of our research, we're very confident about the ability to impart the signal. The question becomes the speed at which it can be done. And so we're in that stage of research and development at this point with some highly qualified, very large suppliers. They know what they're doing. They're doing great work. Our team's doing great work. And I remain optimistic that we're going to find a rather amazing implementation of the platform in this work.

Jeff Bernstein -- Cowen & Company -- Analyst

Got you. Okay. And then just on the retail side. Understandably, we're moving to low-touch retail as you described it last quarter. That's now being talked about kind of everywhere you look. It does seem like a lot of the trends in low-touch will be very positive for you. So how do you kind of see after the immediate disruption that's playing out as we go forward?

Bruce Davis -- Chairman and Chief Executive Officer

I think it's great for us, Jeff. We can articulate a very powerful argument for improving not only efficiency, but now safety of shopping. And then safety has become an important differentiation for retailers. Several of the leading retailers' CEOs have talked about that on their most recent conference calls. Now that people are a bit fearful and uncomfortable going to stores. And so they're trying to figure out how to create a safer environment. But it's also a more complex environment, because creating a safer environment also means that there are other things going on in the stores that weren't going on to the same level. You probably witnessed the surge in Instacart activity and then, of course, all of the major retailers have been working on order from home and pickup at the curb or have it delivered to your home. And that means that store associates are going to be in the stores making the picks.

And for stores who are open 24 hours, of course, then they're going to be naturally interfering with customers. But there's much more work to be done in keeping the stores safe and clean and organized than there was previously, as well. So it's a very difficult retail environment today as they try to find a new normal. And so in the new normal, we're very confident that there's going to be a big movement from cashier-assisted to self checkout and then self checkout, both front of store and mobile, and then a large shift from near zero to some significant percentage of total sales being done through associate or contract shopper activities rather than direct shopping at the shelf by consumers.

So there are a lot of changes going on. All of them I consider favorable to us, because we make all of that work better. And if the robots become part of the efficiency solution, you know, that they're in trials in a number of places, then we make the robots work better, too. And we also make inventory management better. So there are so many ways in which we can help the new retail gain a footing. The only holdup there really is the competition with urgent activities. And trust me, there are many ongoing urgent activities. That will settle down. And so I don't know how long it lasts, because I don't know what goes on with the pandemic. But it will get resolved and we will gain our proper place as a cornerstone of the new retail environment.

Jeff Bernstein -- Cowen & Company -- Analyst

And it seems like there's a lot of opportunities for guys like Zebra or Honeywell, other in-store technology-type companies, the robot guys. Are those folks on track to be able to offer this stuff in an organized fashion as soon as the retailers can focus on it?

Bruce Davis -- Chairman and Chief Executive Officer

Zebra is an excellent partner of ours as are all the other major scanner vendors, and they have a robot offering. And we have done preliminary work with a number of robot companies, and so we know what they're up to and when the economics justify, we're happy to participate in helping the robot revolution flourish, if it will.

Another important dimension of change in retail is the importance of mobile shopping. And in Europe there's a dedicated model of shopping with devices, mobile devices you can pick up in the front of the store. But in the US, there's a growing belief that people will want to use their smart phones more for shopping. And there's a bunch of work that needs to be done to do that. But one of the problem is that we helped overcome uniquely is how do you identify the package for the purchase and picking it up and turning it around while you're holding your phone in your arms and many of the grocery shoppers are women, they might have a purse or a child in their arms, it gets really complicated really fast. We make it uncomplicated. So I think that we will find greater receptivity with Apple and Google and the Google OEMs than we have previously, because of the changes in the nature of shopping that are under way.

Jeff Bernstein -- Cowen & Company -- Analyst

Got you. All right. I'm going to ask you one more, and I'll get back in queue, let somebody else ask. You talked about the brands being more motivated right now or having the ability to execute now more than the retailers. And it seems as if the store brands have taken a lot of share, because of consumers' desires just to stock up and not really caring so much about what the item is, but that it's available. Do the brands kind of have to win back that share here somehow? Are they more engaged because of that? Or how do you read that?

Bruce Davis -- Chairman and Chief Executive Officer

I think that is an influence. So sitting in the shoes of a global brand, the competition from private brands has been intense and is getting more serious. And the consumers are becoming more concerned about health and safety and, frankly, about social matters, given the enormous impact of the Black Lives Matter movement in the United States.

And so that's, I think, and it's just a theory, but I was a bit surprised by the surge of interest in supply chain among national brands. I think they're worried about having problems. They went through serious issues of disruption supply chain due to the pandemic just because of staffing problems, but they don't want to have health problems. They don't want to have product that is identified as coming from slave labor or some over-fished sea or whatever it might be, because damage to the brand now can have more serious consequences given that the alternative may not be another national brand. It may be the private brand.

And so there's this tension, right now a great tension, going on between the retailers as they make their stores safe and inviting places to shop and allowing for flexibility in how people shop, thus building greater brand loyalty with their shoppers. How do you market effectively your national brands these days? So I think the national brands are enduring a painful wakeup call right now in trying to figure out how they're going to maintain competitiveness in the changing landscape of retail.

And so supply chain is an area where they have really become enlightened and another influence of the pandemic, I think, in the sense of the constant refrain about you can't make good decisions without good data, there's a lot of areas of supply chain that would benefit from increased visibility that we can provide.

Jeff Bernstein -- Cowen & Company -- Analyst

That's great. Thanks very much.

Bruce Davis -- Chairman and Chief Executive Officer

Yes.

Operator

[Operator Instructions] Your next question is from Jeff Van Rhee with Craig-Hallum.

Rudy Kessinger -- Craig-Hallum -- Analyst

Hey, guys. This is Rudy on for Jeff. I guess first off, on the traceability and the authentication use case that are going to be a pay by unit, could you just -- I guess is there any unit economics you can share? Or I guess, how big do you think those contracts could be, I guess near-term and over the longer term?

Bruce Davis -- Chairman and Chief Executive Officer

You want to respond, Charles?

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

Sure. Yes, I can handle that. So in this quarter, as I said, there were kind of 10s of 1,000s level. When you start looking out over more of like a 12-month-type horizon, I view them well into six figure kind of deals with potential at full scale to be even larger than that. So these are big potential deals with lots of volume. But they're starting with a pay-as-you-go model. I think over time as they build up to scale, they potentially may want to negotiate an annual fee. But right now, given their business models, kind of that pay-as-you-go is working well for them.

Rudy Kessinger -- Craig-Hallum -- Analyst

Got it. And then you touched a lot on the retail environment and, obviously, the challenges they're going through. On recycling, I guess encouraging to see the first couple deals signed there. What's been the impact sort of to the whole Holy Grail and all the progress you guys were making there with respect to COVID and disruption?

Bruce Davis -- Chairman and Chief Executive Officer

Well, in the first quarter and continuing into the second quarter, there was the sort of obviously general disruption affecting everybody. It affected everybody in that world, as well as elsewhere. And so it impeded some of the organizational activities and some of the funding that we thought was nearly ripe. And so what has happened now on us, too, I'm going to say it's the past six or eight weeks or so, is that things now are perking up, that there is a sense of understanding the environment, better understanding how to manage workflows at the suppliers that are involved, growing interest, as I said, among the national brands to make sure that they remain competitive by being a trustworthy brand. So trustworthiness encompasses sustainability and social awareness.

And so I think these things are driving everybody to get off the dime and get going. But also, the Holy Grail initiative has now been formed. There'll be a public announcement from the relevant people a little later in the year here. But they are getting going now and they know where they want to go. And so we're really excited, actually, about the progress over the last month or so in that area.

Rudy Kessinger -- Craig-Hallum -- Analyst

Great. That's it from me. Thanks.

Bruce Davis -- Chairman and Chief Executive Officer

Yes.

Operator

You have an additional question in queue from Jeff Bernstein with Cowen.

Jeff Bernstein -- Cowen & Company -- Analyst

Bruce, you mentioned reengaging on the strategic financing front. Can you just give a little more color about that?

Bruce Davis -- Chairman and Chief Executive Officer

Yes. So it ties in a bit to the restructuring that we alluded to during the call today. We have continued to make great strides in maturation of our platform. And so as we went out late last year and talked to some companies, I don't think we were quite as clear as we needed to be about the nature of the platform and our ability to deliver and proofs of delivery, and so all of those things are concerns that we addressed and have made great progress on. And so we're circling back around to some of the folks that we talked to, to talk to them about our progress.

And then we are targeting some other potential investors that we hadn't yet approached. So we're going both ways. We're going back around to the early discussions to demonstrate our progress and then we're addressing some new opportunities. And as, again, as the world changes fairly dramatically here in the first half of 2020, the landscape of opportunity may be broader than we had thought previously, because I had, as I put on my list in May of last year, a pretty good idea where I wanted to go, but now there are some interesting things going on that could broaden the landscape of opportunity for us. So we are back, I would say on the road, but not exactly the right expression anymore. Back in the air, virtually.

Jeff Bernstein -- Cowen & Company -- Analyst

Got you. Okay. And then can you just talk about Wegmans, I guess is furthest along of the customers at retail. I think you've talked about really, kind of, focusing on using them to demonstrate the depth of the effectiveness of the product. And I'm wondering how that's going. And particularly with regard to low-touch shopping, if there's anything to be learned from the Wegmans' experience so far.

Bruce Davis -- Chairman and Chief Executive Officer

The efforts to move along with Wegmans' have been a struggle in the first couple quarters here of this year. They have been focused on other things. And so, and we aren't able to go out and visit them very effectively, and so that's been going slow. And I think their focus and the focus, frankly, of the other retailers is appropriate. They've been buying Plexiglas and putting down vinyl on the floors and figuring out how to do home delivery and there's just a lot of stuff going, a lot of urgent changes where the effect on operations is more profound in the immediate than ours. And so that's where we are, I think, and I would say that is a general statement about retail, but particularly with respect to Wegmans. We're not as far along as I had hoped we would be.

Jeff Bernstein -- Cowen & Company -- Analyst

Okay, great. Thank you.

Operator

[Operator Instructions] And you do have a question in queue from Stephen Tomkins with Oppenheimer.

Stephen Tomkins -- Oppenheimer -- Analyst

Yes. Hi, Bruce. I believe last quarter you mentioned that you were working with seven of the top 11 global consumer brands.

Bruce Davis -- Chairman and Chief Executive Officer

Yes.

Stephen Tomkins -- Oppenheimer -- Analyst

And I think you mentioned that you're up to eight now?

Bruce Davis -- Chairman and Chief Executive Officer

I think, yes, I think we did mention eight in the -- although, I haven't gone back to check my diagram that shows me everybody. But yes, I believe it's pretty much everybody at this point. I think we're pretty close to doing business with all of them.

Stephen Tomkins -- Oppenheimer -- Analyst

Okay. And would you say you're getting revenue recognition from most of those? Or how is that working there?

Bruce Davis -- Chairman and Chief Executive Officer

Did you say revenue recognition?

Stephen Tomkins -- Oppenheimer -- Analyst

Yes. Are you seeing revenue from the top consumer brands?

Bruce Davis -- Chairman and Chief Executive Officer

Yes.

Stephen Tomkins -- Oppenheimer -- Analyst

Okay.

Bruce Davis -- Chairman and Chief Executive Officer

Yes. We need to grow the revenues, but yes. Yes, all of our work in the recycling and sustainability areas is funded.

Stephen Tomkins -- Oppenheimer -- Analyst

Got you. And the other question I had was regarding Japan. Do you have any updates from there?

Bruce Davis -- Chairman and Chief Executive Officer

Charles, why I don't I turn that one over to you? Charles manages our work in Japan directly.

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

Yes. So we're working hard to work on the implementation with retailers there. We've got a couple projects that are going on with some brands, but nothing quite yet where there's sufficient details. I'd mentioned last quarter that we had a pilot going with a large logistics company there; that is continuing and we're trying to leverage that relationship into some other opportunities. Once those opportunities are far enough along, then I'll provide a more detailed disclosure on them, but they're just not at the point yet where I want to.

Stephen Tomkins -- Oppenheimer -- Analyst

Excellent. Thank you very much.

Operator

This concludes our question-and-answer session. I would now like to turn the call back over to Bruce Davis. Sir, please proceed.

Bruce Davis -- Chairman and Chief Executive Officer

All right. Thank you, everyone, for participating today. We'll look forward to talking to you again soon, and please get in touch if you have any questions. You can contact the appropriate folks. We now have D.J. in charge of Investor Relations; he's happy to help anyone out who needs more information. So that's it for now. Thank you and goodbye.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Bruce Davis -- Chairman and Chief Executive Officer

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

Jeff Bernstein -- Cowen & Company -- Analyst

Rudy Kessinger -- Craig-Hallum -- Analyst

Stephen Tomkins -- Oppenheimer -- Analyst

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