Needham has reiterated its rating on Digimarc (NASDAQ: DMRC), pointing to the strategic direction set by newly appointed CEO Paul Carreiro. The move comes as the digital watermarking company navigates a transition quarter marked by declining recurring revenue but an expanding retail pipeline.
Carreiro, who took the helm effective July 6, 2026, brings more than 25 years of enterprise software leadership, including a stint as CEO of Elemica, where he helped accelerate the company toward $100 million in annual recurring revenue. He succeeds Riley McCormack, who remains on the board.
Second-quarter results underscored the challenge ahead. Total revenue fell to $7.4 million from $8.0 million a year earlier, while ending annual recurring revenue (ARR) dropped to $11.6 million from $15.9 million. The ARR decline primarily reflects the expiration of a commercial contract in October 2025 that accounted for $3.1 million of ARR and a step-down in another contract in June 2026 worth $2.6 million, partially offset by $1.5 million in net new ARR from new and existing contracts.
Subscription revenue declined to $3.7 million from $4.6 million, driven by the October contract expiration. Service revenue rose modestly to $3.6 million from $3.4 million on higher government and commercial work. Gross margin held at 58%, while non-GAAP gross margin improved to 83% from 80% a year ago.