Document Security Systems, Inc. Reports Second Quarter 2017 Financial Results
Company Posts Improved Financial Performance Through Strong Sales in Technology Cards and AuthentiGuard Applications
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E-mailROCHESTER, NY -- (Marketwired) -- 08/14/17 -- Document Security Systems, Inc. (NYSE American: DSS)
- Year-Over-Year Revenue up 3% to $8.6 million
- 2Q 2017 Adjusted EBITDA of $238,000 vs. 2Q 2016 Adjusted EBITDA of $117,000
- DSS Technology Sales up 37% in 2Q 2017
Document Security Systems, Inc. (NYSE American: DSS) ("DSS"), a leader in anti-counterfeit, authentication, and diversion protection technologies whose products and solutions are used by governments, corporations and financial institutions to defeat fraud and to help ensure the authenticity of both digital and physical financial instruments, identification documents, sensitive publications, brand packaging and websites, today announced its financial results for the second quarter ended June 30, 2017.
"While overall revenue was down slightly for the quarter, I am excited by the strong technology sales growth achieved by the Company, and the number of opportunities we currently have in our pipeline. We are seeing the impact of our first, large-customer implementation of AuthentiGuard, where, despite softness in our packaging division, we achieved tangible improvements in our financial results. On a cumulative basis, our proprietary brand protection and anti-fraud technology products are becoming a larger part of our revenue profile," stated Jeff Ronaldi, CEO of DSS. "The increase in our Adjusted EBITDA profit and the reductions in net loss during the quarter, despite the revenue dip, are indicators of the benefits of our growing success in the higher margin, technology-based businesses in our portfolio" added Ronaldi.
Second Quarter 2017 Financial Highlights
- After a strong first quarter, revenue for the three months ended June 30, 2017 decreased slightly to $3.9 million, down 5% from the three months ended June 30, 2016, but maintained year-over-year growth of 3% for the six months ended June 30, 2017. During the second quarter of 2017, the Company's technology sales, services and licensing revenue grew by 37%, while printed products revenue decreased 9%, as compared to the second quarter of 2016.
- Costs and expenses for the six months ended June 30, 2017 was approximately $8,885,000, which represents a decrease of 3% from $9,183,000 for the six months ended June 30, 2016.
- Net loss during the three months ended June 30, 2017 was approximately $265,000 ($0.02 per share), which is a 17% decrease as compared to a net loss of $318,000 ($0.02 per share) during the second quarter of 2016. Net loss during the six months ended June 30, 2017 was approximately $448,000 ($0.03 per share), which is a 52% decrease as compared to a net loss of $942,000 ($0.07 per share) during the second half of the prior year. The decreases in net loss during both periods are primarily due to the combined impact of increased technology card sales and AuthentiGuard sales, as well as an overall reduction in operating costs.
- Adjusted EBITDA(1) for the three months ended June 30, 2017 was approximately $238,000 as compared to $117,000 for the three months ended June 30, 2016, a 103% improvement. For the six months ended, June 30, 2017, Adjusted EBITDA was $626,000 as compared to $14,000 during the same period of the prior year. The significant improvement in Adjusted EBITDA results for the Company are attributable to strong technology card sales, increased AuthentiGuard sales, and significant decreases in costs and expenses.
A full analysis of results for the quarter ended June 30, 2017 is available in the Company's Form 10-Q, which is available on the Company's website at www.dsssecure.com or through the Securities and Exchange Commission's Edgar database at www.sec.gov.
ABOUT DOCUMENT SECURITY SYSTEMS, INC. For over 15 years, Document Security Systems, Inc. ("DSS") has protected corporations, financial institutions, and governments from sophisticated and costly fraud. DSS' innovative anti-counterfeit, authentication, and brand protection solutions are deployed to prevent attacks which threaten products, digital presence, financial instruments, and identification. AuthentiGuard®, the company's flagship product, provides authentication capability through a smartphone application so businesses can empower a wide range of employees, supply chain personnel, and consumers to track their brands and verify authenticity.
The Company's wholly-owned subsidiary, DSS Plastics Group ("DSSPG"), acquired by DSS in 2006, has been manufacturing advanced plastic cards and related products for businesses worldwide for over 40 years. Utilizing DSS core anti-fraud technologies, DSSPG's expertise includes security printing, plastic card manufacturing, Enhanced Tribal Cards, RFID products, SwiftColor InkJet Plastic Cards, Secure Card Designs and Polycarbonate card production. DSSPG's vast experience and knowledge has made them a leader in the plastic card industry, and has resulted in an impressive client list consisting of numerous governmental agencies, social media giants, global technology firms, and U.S. professional sports organizations and events.
For more information on DSS and its Plastics Group subsidiary, visit http://www.dsssecure.com and http://www.dssplasticsgroup.com.
Keep up-to-date on DSS events and developments, join our online communities at Facebook, Twitter and LinkedIn.
FORWARD-LOOKING STATEMENTS Forward-looking statements that may be contained in this press release, including, without limitation, statements related to the Company's plans, strategies, objectives, expectations, potential value, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act and contain words such as "believes," "anticipates," "expects," "plans," "intends" and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, our ability to continue the growth in sales of AuthentiGuard and manage our expenses, as well as those risks disclosed in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 28, 2017. Forward-looking statements that may be contained in this press release are being made as of the date of its release, and the Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements.
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, % June 30, June 30, %
2017 2016 change 2017 2016 change
----------------------------- -----------------------------
Revenue
Printed
products $ 3,382,000 $ 3,724,000 -9% $ 7,786,000 $ 7,699,000 1%
Technology
sales,
services and
licensing 478,000 348,000 37% 845,000 712,000 19%
----------------------------- -----------------------------
Total revenue $ 3,860,000 $ 4,072,000 -5% $ 8,631,000 $ 8,411,000 3%
Costs and
expenses
Costs of goods
sold,
exclusive of
depreciation
and
amortization $ 2,191,000 $ 2,330,000 -6% $ 4,979,000 $ 4,941,000 1%
Sales, general
and
administrative
compensation 842,000 911,000 -8% 1,740,000 1,758,000 -1%
Depreciation
and
amortization 348,000 340,000 2% 690,000 700,000 -1%
Professional
fees 196,000 116,000 69% 358,000 542,000 -34%
Stock based
compensation 58,000 12,000 383% 191,000 86,000 122%
Sales and
marketing 81,000 91,000 -11% 176,000 166,000 6%
Rent and
utilities 144,000 147,000 -2% 295,000 285,000 4%
Other operating
expenses 126,000 240,000 -48% 354,000 473,000 -25%
Research and
development 42,000 120,000 -65% 102,000 232,000 -56%
-
----------------------------- -----------------------------
Total costs
and expenses $ 4,028,000 $ 4,307,000 -6% $ 8,885,000 $ 9,183,000 -3%
Operating income
(loss) (168,000) (235,000) -29% (254,000) (772,000) -67%
Other expenses
Interest
expense $ (55,000) $ (73,000) -25% $ (112,000) $ (150,000) -25%
Amortized debt
discount (37,000) (5,000) 640% (72,000) (11,000) 555%
----------------------------- -----------------------------
Other expense $ (92,000) $ (78,000) 18% $ (184,000) $ (161,000) 14%
Loss before
income taxes (260,000) (313,000) -17% (438,000) (933,000) -53%
Income tax
expense 5,000 5,000 0% 9,000 9,000 0%
----------------------------- -----------------------------
Net loss $ (265,000) $ (318,000) -17% $ (448,000) $ (942,000) -52%
============================= =============================
Loss per common
share:
Basic and
diluted $ (0.02) $ (0.02) 0% $ (0.03) $ (0.07) -57%
Shares used in
computing loss
per common
share:
Basic and
diluted 13,664,503 12,976,737 5% 13,644,559 12,973,612 5%
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of
December 31,
June 30, 2017 2016
------------- ---------------
ASSETS (Unaudited)
Current assets:
Cash $ 4,068,745 $ 5,871,738
Restricted cash 402,827 177,609
Accounts receivable, net of $50,000
allowance for uncollectible accounts 1,874,366 1,890,981
Inventory 1,523,879 1,206,377
Prepaid expenses and other current assets 297,793 350,289
------------- ---------------
Total current assets 8,167,610 9,496,994
Property, plant and equipment, net 4,593,990 4,573,841
Other assets 45,821 45,821
Goodwill 2,453,597 2,453,349
Other intangible assets, net 1,556,682 1,896,018
------------- ---------------
Total assets $ 16,817,700 $ 18,466,023
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,767,768 $ 2,212,653
Accrued expenses and deferred revenue 940,736 1,290,593
Other current liabilities 2,982,175 2,996,310
Short-term debt 3,552,705 -
Current portion of long-term debt, net 834,416 1,202,335
------------- ---------------
Total current liabilities 10,077,800 7,701,891
Long-term debt, net 1,730,287 5,249,569
Other long-term liabilities 1,893,995 2,184,843
Deferred tax liability, net 55,094 45,619
Commitments and contingencies (Note 6)
Stockholders' equity
Common stock, $.02 par value; 200,000,000
shares authorized, 13,688,903 shares issued
and outstanding (13,502,653 on December 31,
2016) 273,778 270,053
Additional paid-in capital 104,553,417 104,338,002
Accumulated other comprehensive loss (39,494) (45,343)
Accumulated deficit (101,727,177) (101,278,611)
------------- ---------------
Total stockholders' equity 3,060,524 3,284,101
------------- ---------------
Total liabilities and stockholders' equity $ 16,817,701 $ 18,466,023
============= ===============
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30:
(Unaudited)
2017 2016
----------- -----------
Cash flows from operating activities:
Net loss $ (448,566) $ (941,847)
Adjustments to reconcile net loss to net cash
from (used by) operating activities:
Depreciation and amortization 689,749 700,244
Stock based compensation 191,360 86,486
Paid in-kind interest 36,000 39,000
Change in deferred tax provision 9,474 9,474
Amortization of deferred financing costs 72,432 10,576
Decrease (increase) in assets:
Accounts receivable 16,615 (21,380)
Inventory (317,502) (225,290)
Prepaid expenses and other current assets 52,496 (11,686)
Restricted cash (225,218) 75,274
Increase (decrease) in liabilities:
Accounts payable (445,590) 316,587
Accrued expenses and other liabilities (656,033) (104,071)
----------- -----------
Net cash used by operating activities (1,024,783) (66,633)
Cash flows from investing activities:
Purchase of property, plant and equipment (365,659) (128,632)
Proceeds from sale of intangibles - 495,000
Purchase of intangible assets (4,903) (67,944)
----------- -----------
Net cash (used) provided by investing activities (370,562) 298,424
Cash flows from financing activities:
Payments of long-term debt (407,648) (900,808)
Issuances of common stock, net of issuance costs - -
----------- -----------
Net cash used by financing activities (407,648) (900,808)
Net decrease in cash (1,802,993) (669,017)
Cash at beginning of period 5,871,738 1,440,256
----------- -----------
Cash at end of period $ 4,068,745 $ 771,239
=========== ===========
(1) ADJUSTED EBITDA The Company uses Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by the Company by adding back to net income (loss) interest, income taxes, depreciation and amortization expense, and impairment charges as further adjusted to add back stock-based compensation expense and non-recurring items. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing the Company's financial results with other companies in the industry, many of which also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as amortization, depreciation, stock-based compensation and impairment charges, as well as non-operating charges for interest and income taxes, investors can evaluate the Company's operations and its ability to generate cash flows from operations and can compare its results on a more consistent basis to the results of other companies in the industry. Management also uses Adjusted EBITDA to evaluate potential acquisitions, establish internal budgets and goals, and evaluate performance of its business units and management. The Company considers Adjusted EBITDA to be an important indicator of the Company's operational strength and performance of its business and a useful measure of the Company's historical and prospective operating trends. However, there are significant limitations to the use of Adjusted EBITDA since it excludes interest income and expense and income taxes and non-recurring items such as goodwill impairments, each of which impact the Company's profitability and operating cash flows, as well as depreciation, amortization, impairment charges and stock-based compensation. The Company believes that these limitations are compensated by clearly identifying the difference between the two measures. Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net income and loss presented in accordance with GAAP. Adjusted EBITDA as defined by the Company may not be comparable with similarly named measures provided by other entities. The following is a reconciliation of net loss to Adjusted EBITDA loss:
Non-GAAP Financial Performance Measure
-------------------------------------------------
Three Months Ended June 30,
%
2017 2016 change
--------------- --------------- -------
(unaudited) (unaudited)
Net Loss: $ (265,000) $ (318,000) -17%
Add backs:
Depreciation & amortization 348,000 340,000 2%
Stock based compensation 58,000 12,000 383%
Interest expense 55,000 73,000 -25%
Amortization of note discount 37,000 5,000 640%
Income Taxes 5,000 5,000 0%
--------------- --------------- -------
Adjusted EBITDA 238,000 117,000 103%
=============== =============== =======
Adjusted EBITDA, by group
(unaudited)
----------------------------------
Printed Products $ 487,000 $ 653,000 -25%
Technology Management (45,000) (312,000) -86%
Corporate (204,000) (224,000) -9%
--------------- --------------- -------
238,000 117,000 103%
=============== =============== =======
Non-GAAP Financial Performance
Measure
----------------------------------
Six Months Ended June 30,
%
2017 2016 change
--------------- --------------- -------
(unaudited) (unaudited)
Net Loss: $ (448,000) $ (942,000) -52%
Add backs:
Depreciation & amortization 690,000 700,000 -1%
Stock based compensation 191,000 86,000 122%
Interest expense 112,000 150,000 -25%
Amortization of note discount 72,000 11,000 555%
Income Taxes 9,000 9,000 0%
--------------- --------------- -------
Adjusted EBITDA 626,000 14,000 4371%
=============== =============== =======
Adjusted EBITDA, by group
(unaudited)
----------------------------------
Printed Products $ 1,260,000 $ 1,269,000 -1%
Technology Management (134,000) (667,000) -80%
Corporate (500,000) (588,000) -15%
--------------- --------------- -------
626,000 14,000 4371%
=============== =============== =======
For more information: Investor Relations Document Security Systems (585) 232-5440 Email: Email Contact
Source: Document Security Systems, Inc.
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