Document Security Systems, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results
ROCHESTER, N.Y., March 18, 2019 (GLOBE NEWSWIRE) -- 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 fourth quarter and year ended December 31, 2018.
“During the fourth quarter of 2018, we saw our efforts with AuthentiGuard begin to show a meaningful impact on our revenue results. We are seeing the benefits of this business opportunity that establishes a deep and lasting relationship with our customers as they rely on us to help solve their brand and product protection issues,” stated Jeff Ronaldi, CEO of DSS. “For 2018, we were very pleased that we were able to bring to completion an agreement entered into in 2014 with one of our third-party funding partners relating to our intellectual property (“IP”) monetization business that resulted in a net gain to the Company of approximately $3.5 million. The agreement covered a four-year financing arrangement that terminated in February of 2018, which supported our IP monetization efforts relating to a portfolio of semiconductor patents owned by one of our subsidiaries, DSS Technology Management. The resolution of this agreement favorably impacted our net income for the year and helped significantly improve our working capital position as we enter 2019,” added Ronaldi.
Fourth Quarter 2018 Financial Highlights
- Revenue for the fourth quarter of 2018 increased 12% to $5.96 million from $5.83 million in the fourth quarter of 2017. During the quarter, the Company saw revenue of printed products grow by 1% and technology sales, services and licensing revenue grow by 24%, which primarily reflected an increase in sales of the Company’s AuthentiGuard™ products and services.
- Costs and expenses for the fourth quarter totaled $6.1 million, an increase of 9% from $5.6 million during the same period of 2017, primarily reflecting an increase direct costs of goods sold at the Company’s printed products groups, an increase of corporate professional fees associated with increased legal activity, and an increase in sales and marketing expenses, primarily associated with an increase in activity in AuthentiGuard business development, including an increase in international sales and development efforts.
- The Company recorded a net loss during the fourth quarter of 2018 of approximately $404,000 ($0.02 per share), compared to a net income of $148,000 ($0.01 per share) during the fourth quarter of 2017. Impacting the fourth quarter 2018 results was a $160,000 impairment of investment expense recorded by the Company.
- Adjusted EBITDA1 for the fourth quarter of 2018 was approximately $116,000 as compared to $585,000 for the fourth quarter of 2017, an 80% decrease. The decline in adjusted EBITDA was mostly driven by decreases in printed products groups results which were impacted by a general increase in direct costs of goods sold, and an increase in adjusted EBITDA losses for the Company’s technology groups due to the increased sales and development efforts for AuthentiGuard.
Full Year 2018 Financial Highlights
- Revenue for the year of 2018 decreased 1% to $18.5 million from $18.7 million in 2017. During the year, printed products revenue decreased 1% as compared to 2017, driven by an increase in the sales of printing and packaging products of 3% offset by a decrease in sales of plastic card products of 11%. Technology sales, services and licensing revenues decreased 4%, as a result of declines in licensing royalties and recurring IT services, offset by an approximately 51% increase in AuthentiGuard sales.
- Costs and expenses for 2018 totaled $20.2 million, an increase of 7% from $18.9 million in 2017, primarily reflecting an increase direct costs of goods sold at the Company’s printed products groups, an increase of corporate professional fees associated with increased legal activity, and an increase in sales and marketing expenses, primarily associated with an increase in activity in AuthentiGuard business development, including an increase in international sales and development efforts.
- The Company recorded a net income during 2018 of approximately $1.5 million ($0.09 per share), compared to a net loss of $578,000 ($0.04 per share) during 2017. The net income for the year primarily reflects the impact of net gain from extinguishment of liabilities of approximately $3.5 million that the Company recognized in the second quarter of 2018, offset partially by an operating loss during 2018 of $1.7 million.
- Adjusted EBITDA1 for 2018 was approximately $3.2 million as compared to Adjusted EBITDA of $1.4 million in 2017, a 131% increase. The increase in adjusted EBITDA was primarily driven by net gain from extinguishment of liabilities of approximately $3.5 million that the Company recognized in the second quarter of 2018.
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. For more information on DSS and its subsidiaries, visit www.dsssecure.com, http://dssplasticsgroup.com and www.premiercustompkg.com.
Keep up-to-date on DSS events and developments, join our online communities at Facebook, Twitter and LinkedIn.
Contact Information:
Investor Relations
Document Security Systems, Inc.
Tel: (585) 232-5440
Email: ir@dsssecure.com
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, 2018, filed with the Securities and Exchange Commission on March 15, 2019. 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 | ||||||||||||||||||||
| Three Months Ended December 31, 2018 |
Three Months Ended December 31, 2017 |
% change |
Year Ended December 31, 2018 |
Year Ended December 31, 2017 |
% change |
|||||||||||||||
| Revenue | ||||||||||||||||||||
| Printed products | $ | 5,508,000 | $ | 5,473,000 | 1 | % | $ | 16,940,000 | $ | 17,026,000 | -1 | % | ||||||||
| Technology sales, services and licensing | 448,000 | 360,000 | 24 | % | 1,575,000 | 1,636,000 | -4 | % | ||||||||||||
| Total revenue | $ | 5,956,000 | $ | 5,833,000 | 2 | % | $ | 18,515,000 | $ | 18,662,000 | -1 | % | ||||||||
| Costs and expenses | ||||||||||||||||||||
| Costs of goods sold, exclusive of depreciation and amortization |
$ | 3,964,000 | $ | 3,629,000 | 9 | % | $ | 11,853,000 | $ | 11,009,000 | 8 | % | ||||||||
| Sales, general and administrative compensation | 997,000 | 1,099,000 | -9 | % | 3,615,000 | 3,758,000 | -4 | % | ||||||||||||
| Depreciation and amortization | 279,000 | 372,000 | -25 | % | 1,282,000 | 1,414,000 | -9 | % | ||||||||||||
| Professional fees | 245,000 | 57,000 | 330 | % | 1,073,000 | 613,000 | 75 | % | ||||||||||||
| Stock based compensation | 25,000 | 12,000 | 108 | % | 132,000 | 215,000 | -39 | % | ||||||||||||
| Sales and marketing | 217,000 | 109,000 | 99 | % | 559,000 | 401,000 | 39 | % | ||||||||||||
| Rent and utilities | 167,000 | 172,000 | -3 | % | 655,000 | 634,000 | 3 | % | ||||||||||||
| Other operating expenses | 211,000 | 177,000 | 19 | % | 909,000 | 738,000 | 23 | % | ||||||||||||
| Research and development | 39,000 | 4,000 | 875 | % | 146,000 | 106,000 | 38 | % | ||||||||||||
| Total costs and expenses | $ | 6,144,000 | $ | 5,631,000 | 9 | % | $ | 20,224,000 | $ | 18,888,000 | 7 | % | ||||||||
| Operating loss | (188,000 | ) | 202,000 | -193 | % | (1,709,000 | ) | (226,000 | ) | 656 | % | |||||||||
| Other income and expense | ||||||||||||||||||||
| Interest income | $ | - | $ | 4,000 | N/A | $ | 9,000 | $ | 4,000 | 125 | % | |||||||||
| Interest expense | (33,000 | ) | (52,000 | ) | -37 | % | (145,000 | ) | (223,000 | ) | -35 | % | ||||||||
| Amortization of deferred financing costs and debt discount |
(6,000 | ) | (41,000 | ) | -85 | % | (46,000 | ) | (154,000 | ) | -70 | % | ||||||||
| Impairment of investment | (160,000 | ) | - | 100 | % | (160,000 | ) | - | 100 | % | ||||||||||
| Gain on extinguishment of liabilities, net | - | - | 0 | % | 3,533,000 | - | N/A | |||||||||||||
| Total other income and expense | $ | (199,000 | ) | $ | (89,000 | ) | 124 | % | $ | 3,191,000 | $ | (373,000 | ) | 955 | % | |||||
| Income (loss) before income taxes | (387,000 | ) | 113,000 | -442 | % | 1,482,000 | (599,000 | ) | -347 | % | ||||||||||
| Income tax expense (benefit) | 17,000 | (35,000 | ) | -149 | % | 17,000 | (21,000 | ) | -181 | % | ||||||||||
| Net income (loss) | $ | (404,000 | ) | $ | 148,000 | -373 | % | $ | 1,465,000 | $ | (578,000 | ) | 353 | % | ||||||
| Income (loss) per common share: | ||||||||||||||||||||
| Basic | $ | (0.02 | ) | $ | 0.010 | -300 | % | $ | 0.09 | $ | (0.04 | ) | 325 | % | ||||||
| Diluted | $ | (0.02 | ) | $ | 0.004 | -667 | % | $ | 0.09 | $ | (0.04 | ) | 325 | % | ||||||
| Shares used in computing income (loss) per common share: |
||||||||||||||||||||
| Basic | 16,907,805 | 14,424,344 | 17 | % | 16,724,376 | 14,424,344 | 16 | % | ||||||||||||
| Diluted | 16,907,805 | 14,424,344 | 17 | % | 16,930,805 | 14,424,344 | 17 | % | ||||||||||||
| DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES | ||||||||||||
| Consolidated Balance Sheets | ||||||||||||
| As of | ||||||||||||
| December 31, 2018 | December 31, 2017 | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash | $ | 2,317,659 | $ | 4,188,623 | ||||||||
| Restricted cash | 130,326 | 256,005 | ||||||||||
| Accounts receivable, net of $50,000 allowance for doubtful accounts |
2,217,877 | 2,025,284 | ||||||||||
| Inventory | 1,563,593 | 1,651,246 | ||||||||||
| Prepaid expenses and other current assets | 285,580 | 261,324 | ||||||||||
| Total current assets | 6,515,035 | 8,382,482 | ||||||||||
| Property, plant and equipment, net | 5,014,494 | 4,805,640 | ||||||||||
| Investment | 324,930 | 484,930 | ||||||||||
| Other assets | 90,319 | 83,376 | ||||||||||
| Goodwill | 2,453,597 | 2,453,597 | ||||||||||
| Other intangible assets, net | 881,411 | 1,220,752 | ||||||||||
| Total assets | $ | 15,279,786 | $ | 17,430,777 | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 1,347,491 | $ | 728,652 | ||||||||
| Accrued expenses and deferred revenue | 1,106,346 | 989,154 | ||||||||||
| Other current liabilities | 2,255,942 | 2,953,629 | ||||||||||
| Short-term debt | - | 3,645,760 | ||||||||||
| Current portion of long-term debt, net | 713,427 | 966,506 | ||||||||||
| Total current liabilities | 5,423,206 | 9,283,701 | ||||||||||
| Long-term debt, net | 1,721,936 | 1,734,171 | ||||||||||
| Other long-term liabilities | 391,325 | 1,501,064 | ||||||||||
| Deferred tax liability, net | 168,986 | 125,982 | ||||||||||
| Commitments and contingencies (Note 12) | ||||||||||||
| Stockholders' equity | ||||||||||||
| Common stock, $.02 par value; 200,000,000 shares authorized, 17,425,858 shares issued and outstanding (16,599,327 on December 31, 2017) |
348,517 | 331,987 | ||||||||||
| Additional paid-in capital | 107,624,666 | 106,633,708 | ||||||||||
| Subscription receivable, net | - | (300,000 | ) | |||||||||
| Accumulated other comprehensive loss | (7,052 | ) | (23,069 | ) | ||||||||
| Accumulated deficit | (100,391,798 | ) | (101,856,767 | ) | ||||||||
| Total stockholders' equity | 7,574,333 | 4,785,859 | ||||||||||
| Total liabilities and stockholders' equity | $ | 15,279,786 | $ | 17,430,777 | ||||||||
| DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||
| For the Years Ended December 31, | ||||||||||
| 2018 | 2017 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Net income (loss) | $ | 1,464,969 | $ | (578,156 | ) | |||||
| Adjustments to reconcile net income (loss) to net cash used by operating activities: | ||||||||||
| Depreciation and amortization | 1,281,634 | 1,413,838 | ||||||||
| Stock based compensation | 131,733 | 214,862 | ||||||||
| Paid in-kind interest | 12,000 | 72,000 | ||||||||
| Change in deferred tax provision | 9,673 | 80,363 | ||||||||
| Amortization of deferred financing costs and debt discount | 46,251 | 154,142 | ||||||||
| Gain on settlement of legal expenses | - | (219,364 | ) | |||||||
| Gain on extinguishment of liabilities, net | (3,532,659 | ) | - | |||||||
| Impairment of investment | 160,000 | - | ||||||||
| Decrease (increase) in assets: | ||||||||||
| Accounts receivable | (192,593 | ) | (134,303 | ) | ||||||
| Inventory | 87,653 | (444,869 | ) | |||||||
| Prepaid expenses and other current assets | (31,198 | ) | 51,409 | |||||||
| Increase (decrease) in liabilities: | ||||||||||
| Accounts payable | 618,836 | (893,431 | ) | |||||||
| Accrued expenses | (113,793 | ) | (60,791 | ) | ||||||
| Other liabilities | (1,325,427 | ) | (944,834 | ) | ||||||
| Net cash used by operating activities | (1,382,921 | ) | (1,289,134 | ) | ||||||
| Cash flows from investing activities: | ||||||||||
| Purchase of property, plant and equipment | (1,003,413 | ) | (958,819 | ) | ||||||
| Purchase of intangible assets | (100,138 | ) | (11,552 | ) | ||||||
| Net cash used by investing activities | (1,103,551 | ) | (970,371 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Payments of long-term debt | (1,188,081 | ) | (818,332 | ) | ||||||
| Borrowings from equipment lines of credit, net | 502,155 | 522,000 | ||||||||
| Issuances of common stock, net of issuance costs | 887,755 | 951,118 | ||||||||
| Receipt of subscription receivable, net of issuance costs | 288,000 | - | ||||||||
| Net cash provided by financing activities | 489,829 | 654,786 | ||||||||
| Net decrease in cash | (1,996,643 | ) | (1,604,719 | ) | ||||||
| Cash and restricted cash at beginning of year | 4,444,628 | 6,049,347 | ||||||||
| Cash and restricted cash at end of year | $ | 2,447,985 | $ | 4,444,628 | ||||||
1 ADJUSTED EBITDA
The Company uses Adjusted EBITDA as a non-GAAP financial performance measurement. The Company calculates Adjusted EBITDA 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 establish internal budgets and goals, and evaluate performance of its business units and management, and evaluate potential acquisitions. 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 income (loss) to Adjusted EBITDA:
| Three Months Ended December 31, | Years Ended December 31, | ||||||||||||||||||
| 2018 | 2017 | % change | 2018 | 2017 | % change | ||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| Net income (loss): | $ | (404,000 | ) | $ | 147,000 | -375 | % | $ | 1,465,000 | $ | (578,000 | ) | -353 | % | |||||
| Add backs: | |||||||||||||||||||
| Depreciation & amortization | 279,000 | 372,000 | -25 | % | 1,282,000 | 1,414,000 | -9 | % | |||||||||||
| Stock based compensation | 25,000 | 12,000 | 108 | % | 132,000 | 215,000 | -39 | % | |||||||||||
| Interest, net | 33,000 | 48,000 | -31 | % | 136,000 | 219,000 | -38 | % | |||||||||||
| Amortization of deferred financing costs and debt discount |
6,000 | 41,000 | -85 | % | 46,000 | 154,000 | -70 | % | |||||||||||
| Impairment of investment | 160,000 | - | 100 | % | 160,000 | - | 100 | % | |||||||||||
| Income tax expense (benfit) | 17,000 | (35,000 | ) | -149 | % | 17,000 | (21,000 | ) | -181 | % | |||||||||
| Adjusted EBITDA | $ | 116,000 | $ | 585,000 | -80 | % | $ | 3,238,000 | $ | 1,403,000 | 131 | % | |||||||
| Adjusted EBITDA, by group (unaudited) | |||||||||||||||||||
| Printed Products | $ | 661,000 | $ | 899,000 | -26 | % | $ | 1,868,000 | $ | 2,745,000 | -32 | % | |||||||
| Technology | (302,000 | ) | (47,000 | ) | -543 | % | 2,237,000 | (374,000 | ) | 698 | % | ||||||||
| Corporate | (243,000 | ) | (262,000 | ) | -7 | % | (867,000 | ) | (968,000 | ) | -10 | % | |||||||
| 116,000 | 590,000 | -80 | % | 3,238,000 | 1,403,000 | 131 | % | ||||||||||||
