DSS Announces Second Quarter 2019 Financial Results
ROCHESTER, N.Y., Aug. 13, 2019 (GLOBE NEWSWIRE) -- DSS (NYSE American: DSS) (the “Company”), 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 product authenticity, today announced its financial results for the second quarter ended June 30, 2019.
Second Quarter 2019 Business Highlights and Recent Developments
August 2019 - DSS adds two independent directors, Mr. Jose’ Escudero and Mr. Samson Lee to its Board of Directors
July 2019 - DSS releases blockchain tracking and authentication technology “Sentinel” to combat unauthorized sellers, map violators and retail arbitrage within Amazon Marketplace
July 2019 – DSS appoints Jason Grady as Chief Operating Officer
June 2019 - DSS prices $5.6 million underwritten public offering of common stock
June 2019 - DSS BioHealth Security, Inc. announces the addition of Daryl Thompson and Dr. Roscoe Moore to advisory team
May 2019 - Established new business divisions for strategic global expansion
May 2019 - Added new independent directors, John “JT” Thatch, Brett Scott and Stan Grisham to DSS Board of Directors
April 2019 - Announced brand protection agreement with Market Defense, LLC
March 2019 - Mr. Heng Fai Ambrose Chan named DSS Chairman of the Board of Directors
March 2019 - DSS and Zappar, Ltd. partner to combine proprietary technologies to Inform, Engage and Protect
“As we reach the half-way point of our fiscal year, I am pleased with the progress we are making relative to the execution of our business plan. We have realized a comparable quarter increase of nearly 34% in our Technology sales, services, and licensing revenue, and I am particularly encouraged with our continued growth performance as it relates to DSS’ flagship product, AuthentiGuard,” stated Frank D. Heuszel, CEO of DSS.
“Overall, DSS revenues are up by almost 5.5% for the first six-months of 2019, and we continue to be optimistic about even further growth opportunities for the remainder of the year and beyond. Further, the Company continues to identify potential operational and cost savings while we are simultaneously aligning resources to support and build a foundation for strategic growth opportunities. Furthermore, in June 2019, we completed a successful capital raise which netted approximately $4.9 million. The proceeds therefrom will be directed toward addressing pent-up Printed product customer demand and the marketing and sales of our AuthentiGuard product and associated anti-counterfeiting and brand protection technologies. There is a focused commitment by all members of the DSS team to increase our market share, customer base and financial performance, the results of which, we believe, will provide measurable value to our shareholders,” added Heuszel.
Second Quarter 2019 Financial Highlights
- Revenues for the six-months ended June 30, 2019, as compared to the same period of 2018, increased from $8.5 million to $8.9 million representing an increase of approximately 5.5%. This revenue growth for the period was primarily driven by an increase in the sales of Printed products of approximately 4.0%, predominantly due to increased packaging sales. Technology sales, services and licensing revenue also grew for the same comparative period by over 14.0% primarily resulting from increased AuthentiGuard sales.
- For the three-months ended June 30, 2019, total revenue remained relatively steady at approximately $4.1 million as compared to the same three-months ended June 30, 2018. While revenues from the sale of Printed products decreased by 3% during the three-months ended June 30, 2019, as compared to the same period in 2018, the Technology sales, services and licensing revenues increased by nearly 34% during the same comparative three-months ended June 30, 2019. The decline in Printed products revenues is primarily due to a decline in vinyl card sales. The increase in technology sales is primarily due to increased AuthentiGuard sales.
- Costs of goods sold increased by 5.0% and 13.0%, respectively, during the three and six-months ended June 30, 2019, as compared to the same periods in 2018, representing an increase in outside services used by our technology group, coupled with an increase in material costs as a percentage of the printed products groups’ total direct costs.
- For the three and six months-ended June 30, 2019, the Company recorded net loss of approximately $1.0 million ($0.05 per share) and $1.5 million ($0.07 per share), respectively, as compared to net income of $2.7 million ($0.16 per share) and $2.3 million ($0.14 per share), respectively, during the same periods in 2018. The increase in operating losses incurred during the three and six months ended June 30, 2019 as compared to the same periods in 2018 is due primarily to an approximate $3.5 million gain on extinguishment of debt recorded in Q2 2018 as well as an increase in direct costs as a percentage of sales at the Company’s printed products divisions, an increase in professional fees, and an increase in costs associated with the Company’s expansion into Asia.
- The Company recorded an Adjusted EBITDA1 loss of ($724,000) for the six-months ended June 30, 2019 as compared to positive Adjusted EBITDA of $3,160,000 for the six-months ended June 30, 2018. The decline in Adjusted EBITDA was driven by increased cost of sales for the printed products group, as well as the $3.5M gain on extinguishment of debt recorded in Q2 2018.
A full analysis of results for the quarter ended June 30, 2019 is available in the Company’s Form 10-Q which was filed on August 13, 2019 and is available on the Company’s website at www.dsssecure.com or through the Securities and Exchange Commission’s Edgar database at https://www.sec.gov/ .
ABOUT DOCUMENT SECURITY SYSTEMS, INC.
For over 16 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 integrated operating divisions, visit DSS at www.dsssecure.com, Premier Printing Corporation at www.premiercustompkg.com and DSS Plastics Group at http://dssplasticsgroup.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 | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| As of | ||||||||||
| (unaudited) | ||||||||||
| June 30, 2019 | December 31, 2018 | |||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 5,321,344 | $ | 2,317,659 | ||||||
| Restricted cash | 50,266 | 130,326 | ||||||||
| Accounts receivable, net of $50,000 allowance for doubtful accounts | 2,564,178 | 2,217,877 | ||||||||
| Inventory | 1,272,111 | 1,563,593 | ||||||||
| Prepaid expenses and other current assets | 256,048 | 285,580 | ||||||||
| Total current assets | 9,463,947 | 6,515,035 | ||||||||
| Property, plant and equipment, net | 4,854,786 | 5,014,494 | ||||||||
| Investment | 324,930 | 324,930 | ||||||||
| Other assets | 90,319 | 90,319 | ||||||||
| Right-of-use assets | 1,313,742 | - | ||||||||
| Goodwill | 2,453,597 | 2,453,597 | ||||||||
| Other intangible assets, net | 1,166,310 | 881,411 | ||||||||
| Total assets | $ | 19,667,631 | $ | 15,279,786 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 1,563,986 | $ | 1,347,491 | ||||||
| Accrued expenses and deferred revenue | 818,773 | 1,106,346 | ||||||||
| Other current liabilities | 1,473,163 | 2,255,942 | ||||||||
| Current portion of long-term debt, net | 348,574 | 713,427 | ||||||||
| Current portion of lease liability | 332,883 | - | ||||||||
| Total current liabilities | 4,537,379 | 5,423,206 | ||||||||
| Long-term debt, net | 1,965,829 | 1,721,936 | ||||||||
| Lease liability | 1,005,222 | - | ||||||||
| Other long-term liabilities | 329,348 | 391,325 | ||||||||
| Deferred tax liability, net | 168,986 | 168,986 | ||||||||
| Capital lease obligations | - | 0 | ||||||||
| Commitments and contingencies (Note 10) | ||||||||||
| Stockholders' equity: | ||||||||||
| Common stock, $.02 par value; 200,000,000 shares authorized, 29,202,721 shares issued and outstanding (17,425,858 on December 31, 2018) | 584,054 | 348,517 | ||||||||
| Additional paid-in capital | 112,972,366 | 107,624,666 | ||||||||
| Accumulated other comprehensive loss | (22,483 | ) | (7,052 | ) | ||||||
| Accumulated deficit | (101,873,070 | ) | (100,391,798 | ) | ||||||
| Total stockholders' equity | 11,660,867 | 7,574,333 | ||||||||
| Total liabilities and stockholders' equity | $ | 19,667,631 | $ | 15,279,786 | ||||||
| DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES | ||||||||||||||||||||
| Condensed Consolidated Statements of Operations | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Three Months Ended June 30, 2019 |
Three Months Ended June 30, 2018 |
% change |
Six Months Ended June 30, 2019 |
Six Months Ended June 30, 2018 |
% change |
|||||||||||||||
| Revenue | ||||||||||||||||||||
| Printed products | $ | 3,623,000 | $ | 3,725,000 | -3 | % | $ | 7,989,000 | $ | 7,648,000 | 4 | % | ||||||||
| Technology sales, services and licensing | 484,000 | 362,000 | 34 | % | 927,000 | 816,000 | 14 | % | ||||||||||||
| Total revenue | $ | 4,107,000 | $ | 4,087,000 | 0 | % | $ | 8,916,000 | $ | 8,464,000 | 5 | % | ||||||||
| Costs and expenses | ||||||||||||||||||||
| Costs of goods sold, exclusive of depreciation and amortization | $ | 2,898,000 | $ | 2,756,000 | 5 | % | $ | 6,057,000 | $ | 5,338,000 | 13 | % | ||||||||
| Sales, general and administrative compensation | 814,000 | 855,000 | -5 | % | 1,734,000 | 1,822,000 | -5 | % | ||||||||||||
| Depreciation and amortization | 337,000 | 347,000 | -3 | % | 631,000 | 692,000 | -9 | % | ||||||||||||
| Professional fees | 434,000 | 352,000 | 23 | % | 726,000 | 585,000 | 24 | % | ||||||||||||
| Stock based compensation | 28,000 | 85,000 | -67 | % | 59,000 | 86,000 | -31 | % | ||||||||||||
| Sales and marketing | 164,000 | 121,000 | 36 | % | 281,000 | 214,000 | 31 | % | ||||||||||||
| Rent and utilities | 176,000 | 161,000 | 9 | % | 365,000 | 316,000 | 16 | % | ||||||||||||
| Other operating expenses | 230,000 | 222,000 | 4 | % | 458,000 | 457,000 | 0 | % | ||||||||||||
| Research and development | 18,000 | 6,000 | 200 | % | 19,000 | 105,000 | -82 | % | ||||||||||||
| Total costs and expenses | $ | 5,099,000 | $ | 4,905,000 | 4 | % | $ | 10,330,000 | $ | 9,615,000 | 7 | % | ||||||||
| Operating loss | (992,000 | ) | (818,000 | ) | 21 | % | (1,414,000 | ) | (1,151,000 | ) | 23 | % | ||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income | $ | 3,000 | $ | 3,000 | 0 | % | $ | 4,000 | $ | 6,000 | -33 | % | ||||||||
| Interest expense | (41,000 | ) | (34,000 | ) | 21 | % | (70,000 | ) | (83,000 | ) | -16 | % | ||||||||
| Amortization of deferred financing costs and debt discount | (1,000 | ) | (6,000 | ) | -83 | % | (1,000 | ) | (34,000 | ) | -97 | % | ||||||||
| Gain on extinguishment of liabilities, net | - | 3,533,000 | -100 | % | - | 3,533,000 | -100 | % | ||||||||||||
| Total other expense | $ | (39,000 | ) | $ | 3,496,000 | -101 | % | $ | (67,000 | ) | $ | 3,422,000 | 102 | % | ||||||
| Income (loss) before income taxes | (1,031,000 | ) | 2,678,000 | -138 | % | (1,481,000 | ) | 2,271,000 | -165 | % | ||||||||||
| Income tax expense (benefit) | - | - | 0 | % | - | - | 0 | % | ||||||||||||
| Net income (loss) | $ | (1,031,000 | ) | $ | 2,678,000 | -138 | % | $ | (1,481,000 | ) | $ | 2,271,000 | 165 | % | ||||||
| Earnings (loss) per common share: | ||||||||||||||||||||
| Basic | $ | (0.05 | ) | $ | 0.16 | -131 | % | $ | (0.07 | ) | $ | 0.14 | 150 | % | ||||||
| Diluted | $ | (0.05 | ) | $ | 0.16 | -131 | % | $ | (0.07 | ) | $ | 0.13 | 154 | % | ||||||
| DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES | ||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| For the Six Months Ended June 30, | ||||||||||||
| (unaudited) | ||||||||||||
| 2019 | 2018 | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | (1,481,272 | ) | $ | 2,271,367 | |||||||
| Adjustments to reconcile net income (loss) to net cash used by operating activities: | ||||||||||||
| Depreciation and amortization | 631,147 | 692,483 | ||||||||||
| Stock based compensation | 58,610 | 86,173 | ||||||||||
| Paid in-kind interest | - | 12,000 | ||||||||||
| Amortization of deferred financing costs and debt discount | 600 | 33,899 | ||||||||||
| Gain on extinguishment of liabilities, net | - | (3,532,659 | ) | |||||||||
| Decrease (increase) in assets: | ||||||||||||
| Accounts receivable | (346,301 | ) | 118,491 | |||||||||
| Inventory | 291,482 | 289,513 | ||||||||||
| Prepaid expenses and other current assets | 53,895 | (27,771 | ) | |||||||||
| Increase (decrease) in liabilities: | ||||||||||||
| Accounts payable | 216,496 | 303,907 | ||||||||||
| Accrued expenses | (249,903 | ) | (90,318 | ) | ||||||||
| Other liabilities | (897,858 | ) | (606,928 | ) | ||||||||
| Net cash used by operating activities | (1,723,104 | ) | (449,843 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of property, plant and equipment | (261,555 | ) | (311,402 | ) | ||||||||
| Purchase of intangible assets | (350,000 | ) | (20,137 | ) | ||||||||
| Net cash used by investing activities | (611,555 | ) | (331,539 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Payments of long-term debt | (121,560 | ) | (758,302 | ) | ||||||||
| Borrowings from convertible note | 500,000 | - | ||||||||||
| Issuances of common stock, net of issuance costs | 4,879,844 | - | ||||||||||
| Receipt of subscription receivable, net of issuance costs | - | 288,000 | ||||||||||
| Net cash provided (used) by financing activities | 5,258,284 | (470,302 | ) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 2,923,625 | (1,251,684 | ) | |||||||||
| Cash and restricted cash at beginning of period | 2,447,985 | 4,444,628 | ||||||||||
| Cash and restricted cash at end of period | $ | 5,371,610 | $ | 3,192,944 | ||||||||
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 income (loss):
| Non-GAAP Financial Performance Measure | |||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
| 2019 | 2018 | % change | 2019 | 2018 | % change | ||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| Net loss: | $ | (1,031,000 | ) | $ | 2,677,000 | -139 | % | $ | (1,481,000 | ) | $ | 2,271,000 | -165 | % | |||||
| Add backs: | |||||||||||||||||||
| Depreciation & amortization | 337,000 | 347,000 | -3 | % | 631,000 | 692,000 | -9 | % | |||||||||||
| Stock based compensation | 25,000 | 85,000 | -71 | % | 59,000 | 86,000 | -31 | % | |||||||||||
| Interest, net | 40,000 | 31,000 | 29 | % | 66,000 | 77,000 | -14 | % | |||||||||||
| Amortization of deferred financing costs and debt discount | 1,000 | 6,000 | -83 | % | 1,000 | 34,000 | -97 | % | |||||||||||
| Adjusted EBITDA | $ | (628,000 | ) | $ | 3,146,000 | -120 | % | $ | (724,000 | ) | $ | 3,160,000 | -123 | % | |||||
| Adjusted EBITDA, by group (unaudited) | |||||||||||||||||||
| Printed Products | $ | (19,000 | ) | $ | 177,000 | -111 | % | $ | 351,000 | $ | 728,00 |
-52 | % | ||||||
| Technology | (503,000 | ) | 3,232,000 | 116 | % | (517,000 | ) | 2,920,000 | 118 | % | |||||||||
| Corporate | (106,000 | ) | (263,000 | ) | -60 | % | (558,000 | ) | (488,000 | ) | 14 | % | |||||||
| (628,000 | ) | 3,146,000 | -120 | % | (724,000 | ) | 3,160,000 |
-123 | % | ||||||||||
