Welcome, everyone, to our Q3 earnings call. I'm Charles Beck, Digimark CFO. and I'm joined today by Paul Carreiro, Digimark CEO. On the call today, Paul will provide a business update and I will discuss our Q3 2026 financial results. This will be followed by a question and answer forum. Before we begin, let me remind everyone that today's discussion contains forward-looking statements that have risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. I will now turn the call over to you now.

Thank you, Charles, and good afternoon, everyone. And I hope outlook being down hasn't caused you all too many problems. This is my second earnings call as CEO of Digimark in my first full quarter leading the business. On our last call, I shared what I believe we needed to focus. Sharper priorities, stronger commercial execution, and greater operating discipline. This quarter has been about putting those actions in motion. We have made tremendous progress, although I recognize we are still learning in the journey. What is ultimately most important is progress is beginning to show up in new customer orders. We have received additional secured gift card orders from large retailers earlier than expected and now have more than 68 retailers engaged, paired with one at the start of the year. We also secured a significant CPG win for over 1.1 million annually with a large European customer. with new and additional opportunities emerging in the sector. These are extremely encouraging early results. Our responsibility is to turn this new demand into real deployments, recurring revenue, and a more predictable business. Our theme today is simple. We are narrowing our focus in order to accelerate. After a full quarter as CEO, I'm increasingly convinced that Digimark has the technology, customer relevance, and Product Market Fit to build a significantly stronger and larger business. The opportunity is to match those assets with the commercial organization and operating with them they deserve. We have already strengthened our executive reporting cadence and discipline in the way we manage our business. This is giving us clearer visibility into customer activity, sales execution, pipeline activity and the decisions we need to make with this new data. Our secure gift card program is making tremendous progress and is moving from validation into staged retailer rollouts. As you have seen from our previous social media post, Kroger has begun its initial five-store kickoff with a rapid rollout to follow in Q1. And our CPG authentication business is gaining traction, particularly among global customers with significant anti-counterfeiting needs, as I will speak further about. We continue to add experience, commercial and partner leadership, and in parallel, are building out the account executive capacity to follow through on the opportunities being created in retail, CPG, and emerging government businesses. I want to be clear about where we have more work to do. Our visibility into 2027 bookings and revenue is not yet at the level I expect. Improving pipeline quality and forecast discipline remains a major priority. The foundations are stronger Our focus now is making that great progress repeatable. One of the most important decisions we made was to simplify how we go to market. Rather than spread our direct resources too widely, we are concentrating on retail and consumer packaged goods, where differentiation is greatest and the commercial opportunities are most immediate. Central bank and federal opportunities remain important. and we will pursue them with the right coverage and partners. We have hired senior leaders in sales, marketing, revenue operations and partners and alliances. Those appointments bring clearer accountability and discipline for quota, pipeline, forecast, operations data and partner engagement. The senior commercial structure is substantially in place and we are continuing to strengthen. The next step is continuing to add sales talent across both North America and Europe who convert opportunity into repeatable business. Account executive capacity in retail and CPG is our immediate and ongoing priority along with more rigorous account planning all backed by a strong three times qualified pipeline coverage. We're making great progress in building out our two sales teams along with a consistent 360 degree approach in how we engage with our customers This is not growth through indiscriminate spending. It is putting resources where we see the strongest potential return in the shortest time with the least amount of risk. I want to provide some direction on what you should expect to see from us over the next few quarters. Retail continues to make tremendous progress. Schnucks and now 165 stores at Stater Brothers are both fully live. Our results are exceeding expectations. Kroger began its five-store initial rollout in October, along with Food City KVAT, also kicking off their North America store-wide rollouts. We are expecting at least one more large retailer to kick off their program before we finish the year. As we move into the first quarter of 2027, we are targeting a 500-store expansion of Kroger and more than 1,000 stores being planned across other retailer deployments. Other retailers in the United States, Canada, Australia, and Europe are also eagerly discussing pilot roles and broader deployments. We expect the associated revenue contribution to rapidly build through 2027 as those deployments progress and others come on board. In CPG, we're expanding authentication programs with new and existing customers, including tobacco anti-counterfeiting campaign to help combat This global program, which also affects country-based tax revenues. Partners are and will continue to play a key role in our success, and we are expanding our partner ecosystem across both Europe and Asia while developing demand with our direct teams across the install base, particularly in North America and Europe. Behind both markets, we continue to add experience, selling capacity, data-centric revenue operation programs, and reporting programs to ensure a disciplined approach to how we continue to engage with our customers in a broader market. These milestones will be key to our success and we will continue to report against our progress in the coming quarters. The go-to-market commercial model we are putting in place is straightforward. Dedicated industry teams for retail and CPG providing clear commercial ownership and focus while we continue to leverage our global partners across both industry sectors, allowing us to significantly extend our direct reach while also strengthening our moat, particularly in retail. Early indicators are very positive with retailer engagement rising to more than 68 across North America and Europe. Additionally, CPG has demonstrated that it will be a strong business sector for us with our recent win at a large European CPG customer representing over $1.1 million in expected ongoing annual revenue across only two of their 24 regions. Through the balance of P4 in first half 2027, we will continue to build out and grow our dedicated retail and CPG teams along with our federal capability, leveraging the great work we are doing with the Global Central Bank Group. The raw material of our success will be the build-out and management of a three-times pipeline coverage as a practical discipline. With leadership mostly in place and continued build of our go-to-market commercial teams, one area of continued and immediate focus will be ensuring we get our commercial teams to rapidly engage with one of our most critical assets, our install-based customers. I fully expect that we have significant short- to mid-term revenue opportunity within this group, which has also had limited engagement today, also impacting our customer retention. With this engagement approach, I expect improvement in customer journey. This is one of the most attractive, lower risk path to growth available to us. Our commercial focus does not come at the expense of continued innovation. In fact, we are accelerating innovation by tying it work directly to the problems customers need us to solve today and the requirements they see coming in the areas of retail and CPG. In retail, Our AI optimized secure gift card software is operating on scanners from Zebra, Datalogic, and Honeywell, with deployments at multiple retailers and further opportunities in the pipeline. We are delivering new AI models to strengthen that protection and make our solution even harder to replicate. In CPG, product authentication, packaging, and detection is a critical product Thank you. Thank you. Our hardware and operating support costs have been reduced by over 50%, allowing us to rapidly increase our customer throughput at negligible cost. Of course, we continue to leverage multiple AI and L data platforms to help accelerate customer migration and product development. Our test for product investment is whether it solves well-defined customer problems, which can be applied to the broader industry at volume with measurable economic value. that discipline will continue to shape our roadmap. A little more in our retail secure gift card program. Our secure gift card program continues to be the anchor to our business and is a good example of how strategy is now translating in action. As I've noted many times previously, Schnucks is live across all 115 stores with both closed and open loop cards with 100% activation and no reported fraud incidents in that deployment today. That's an amazing result. Additionally, we recently completed the 165-store rollout of multiple branded cards at Stata Brokers. We now have more than 500,000 cards in stores, and our retailer pipeline has grown more than 68-fold since the start of the year. And we do not expect that pipeline growth to abate. Brokers' first five stores began rollout in October, and we now have four active pilots and production ramp-ups in Q4. We have also seen additional gift card orders accelerate earlier than expected and believe we will see a few more retailer orders in Q4. Looking ahead, we are targeting the next phase of program and broader deployments at other retailers exceeding 1,000 stores across retailers in the first half of 2027 with further programs expected to follow. None of this happens through Digimark alone. Car Network, scanner manufacturers, production suppliers, and packaging partners all play an important role. Scanner software availability and retailer scheduling are still dependencies, and we are successfully working through them directly with those partners. We are encouraged with the progress given. It is now grounded in store rollouts and real orders. The specific rollout plans are now tightly managed and controlled. Charles, back to you for the financial results.

Thank you, Paul. Ending ARR was $10.8 million at the end of Q3 compared to $15.8 million a year ago. The change primarily reflects two previously disclosed events, the expiration of a $3.1 million contract in October 2025 and a $2.6 million contract reduction in June 2026. As Paul mentioned earlier, we recently closed a new CPG contract that will provide for $1.1 million of ARR growth. This contract was signed in the fourth quarter and is therefore not reflected in the AR number I just reported. Our primary focus here is on accelerating AR growth by strengthening our go-to-market team, sharpening our industry focus, increasing operating discipline, and improving execution. Total revenue for Q3 was 6.4 million compared to 7.6 million in Q3 last year. Subscription revenue, which accounted for 49% of total revenue for the quarter, was $3.2 million compared to $4.6 million last year. The two customer contracts I referenced on the last slide account for all of that change. Service revenue for the quarter was $3.3 million compared to $3.1 million last year. The increase reflected higher service revenue from a commercial customer. Subscription gross profit margin was 87% for the quarter, up a percentage point from Q3 last year. The improvement primarily reflects lower subscription platform costs, which decreased by $200,000 year-over-year. Service gross profit margin was 60% for the quarter, up 3 percentage points from Q3 last year. The improvement was primarily due to favorable mix of service revenue. Operating expenses were $11.5 million for the quarter, down $1.3 million, or 10%, compared to $12.8 million in Q3 last year. The decrease primarily reflects lower stock compensation expense of $700,000 and lower bad debt expense of $500,000. Non-GAAP operating expenses, which exclude non-cash and non-recurring items, were $8 million for the quarter, down $600,000, or 7%, compared to $8.6 million in Q3 last year. The decrease primarily reflects lower bad debt expense of $500,000. Net loss per diluted share was $0.36 for the quarter, compared to $0.38 in Q3 last year, while non-GAAP net loss per diluted share was $0.13 for the quarter, compared to $0.10 last year. We ended the quarter with $22.1 million in cash and short-term investments and no debt. During the quarter, we raised $18.2 million of gross proceeds under the previously announced registered direct offering. We incurred commissions and legal fees of $1.3 million related to the financing, of which $200,000 were paid during the third quarter. For the quarter, we used $4.3 million of free cash flow compared to $3.1 million in Q3 last year. The higher free cash flow usage was due to timing of payables related to the corporate reorganization and CEO transition costs. During the quarter, we also used 400,000 repurchased shares associated with our employee equity programs. For additional information regarding our financial results and risks and opportunities facing our business, please refer to our Form 10-Q, which will be filed shortly with the SEC. Paul, back to you with closing remarks.

Let me close by thanking our employees customers, partners, and of course the investor community for their support and patience. Progress this quarter reflects a great deal of focused work across the company. We have acted quickly, strengthening leadership, concentrating and focusing our commercial effort, securing new orders earlier than expected, advancing retailer deployments, and bringing more execution discipline in how we operate. I'm proud of that progress, but I'm not confusing early momentum with the results we ultimately need to deliver long-term. Over the coming quarters, judges buy the things that matter. Sales capacity coming online, pilots becoming active deployments, growth from our CPG business and install-based customers, and steadily improving forecast visibility. We will invest prudently and remain accountable for execution. I'm even more confident today than I was on my first call after seeing our early plans come together. The rebuild is underway and we are beginning to see the results. Thank you. Operator, please open up the call for questions.

Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from Joshua Riley from Needham. You may proceed with your question.

Yeah, thanks guys for taking my questions. You attended the RGCA event, I believe that's the Retail Gift Card Association event in late October, and highlighted strong market interest in your gift card security solution at the event. Could you just give us more color on the conversations you had there, what the pipeline looks like coming out of that event, and then are you seeing more retailers moving from evaluation into pilots, and thoughts on the deployment trajectory there?

Yeah, great questions, Joshua. Thanks for asking that. There were a few questions to unpack there, so let me try to get to them all. We were very impressed with that event. It's really classified as, I'll call it a small to mid-sized event. But the attendees at the event were pretty well a broad range of retailers across North America and globally as well, from mid-sized retailers to even some of the largest retailers globally that were there. The feedback that we got was extremely positive, and it was more from the perspective of a discussion on rollout plan strategy that they had on their particular gift card programs. It also helped us better identify who the buying personas were in some of these organizations. And that is a big part of the benefit that our team got out of being in that event is meeting some of the buying individuals and decision makers that own these programs within these large retailers that gave us an opportunity to get in the door, talk more about our technology, and get them comfortable with the roll-up programs. And that was a big part of the benefit that we got. And as you would imagine, and as you saw us talk about and post a few times, we got some great activity. And our pipeline grew. I don't have the exact details, but our pipeline grew quite significantly coming out of the event with follow-up opportunities.

Got it. That's helpful. And then could you just update us on the go-to-market build-out in North America? You previously expected the sales teams to kind of be fully in place by mid-Q4. Are you still on track for that? And then how are you thinking about ramping productivity of these reps once they are in place?

Our ramp-up plans continue to be on track. I expect a full ramp-up. to really take until about Q1, Q2 of next year. And the reason is to your second point that you made, which is ensuring proper ramp up of the individuals that we bring on board. And what that means is to ensure that you've got the fastest time to productivity out of your go-to-market teams that you bring on board. You want to ensure that you've got a a strong and detailed enablement program in place. That's what we're building out and are close to building out, and that's what we plan to have in place as our first tranche of individuals come on board in the coming weeks. We expect to add more in Q4, a few more in Q1, and a few more in Q2. By that time, those teams are now starting to identify So we're thinking about this not only from a 2027 model, but also from a 2028 ramp-up perspective as well.

Got it. That's very helpful. You've built an end-to-end partner network for gift card security, spanning issuance, scanning, card production, and packaging. How much are those partners actively driving the pipeline today, either by bringing you opportunities or co-selling? compared with simply enabling the solution once a retailer signs up?

We have had tremendous fortune in aligning with the partners that we've been part of, from our printer partners, from our distributor partners, from our scanner partners. They have all been tremendous enablers, and the majority of our leads have actually come from this constituent group. and we'll continue to nurture and engage with that group as we continue to build out this entire program. The model adjustment that I'll call it, and I'll call this an and strategy, and this is what a big part of the focus of our go-to-market team build-out is going to be, is to engage directly with the large retailers. to really have both a retailer engagement model as well as a partner engagement model. And to really get the acceleration we're looking for, you really need to have both.

Got it. That's helpful. Last question for me is, with the holiday season right around the corner, are you seeing an increase in retailers running pilots? through peak gift card volume or I guess maybe help us understand when is peak gift card actual selling versus usage and what are you seeing in terms of some of the pilots that you do have going? Thanks, guys.

Yeah, thanks for the question. One of the things that we're still trying to identify are what peak season actually is. They're fairly straightforward with the largest retailers, but one of the things that we're finding is even with the largest of retailers, some of them are coming to us right now during their peak season to kick off their programs. And in fact, an extremely large retailer has approached us to kick off their program in Q4, one of their most significant and heaviest quarters because they're starting to identify how critical a program like this actually is in terms of bottom line profitability and customer satisfaction. So while there are seasonalities, to their retail business. Right now, it doesn't seem to be affecting us too greatly in our initial rollout, but we are still staying sensitive to it in the future.

Excellent.

This now concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This concludes today's teleconference call. Please disconnect your lines and have a wonderful day.