Document Security Systems, Inc. Reports Fourth Quarter and Year-End 2016 Financial Results
ROCHESTER, NY -- (Marketwired) -- 03/28/17 -- Document Security Systems, Inc. (NYSE MKT: DSS)
- Year-Over-Year Revenue up 10% to $19.2 million
- 2016 Adjusted EBITDA total $1.1 million vs. 2015 Adjusted EBITDA Loss of ($1.3 million)
- Net Loss Per Share Reduced 94% from ($1.20) in 2015 to ($0.07) in 2016
- 2016 Year-End Cash Balance of $5.9 million vs. $1.4 million in 2015
Document Security Systems, Inc. (NYSE MKT: 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, 2016.
"The fourth quarter of 2016 was another very positive quarter for DSS, and a strong end to our year. Not only did we realize continuing growth and strong financial performance in our printing, packaging, and ID card businesses, but in addition, we announced an exciting new customer for our AuthentiGuard security product line and began to realize early returns from this relationship in the fourth quarter," stated Jeff Ronaldi, CEO of DSS.
"During the fourth quarter, we completed an IP monetization financing which bolstered our cash position and balance sheet by over $4.4 million. We also generated strong Adjusted EDITDA results, and ended the year with a positive Adjusted EBITDA of just over $1.0 million. These are strong indicators demonstrating that the strategic initiatives undertaken during 2016 are having a positive impact on our business, and helping us build sustainable profitability. As we enter 2017, we are well-positioned to accelerate growth, especially as AuthentiGuard achieves increased customer adoption, and we leverage our improved financial performance and balance sheet to target additional expansion opportunities in the anti-counterfeiting and brand protection markets," added Ronaldi.
Fourth Quarter 2016 Financial Highlights
- Revenue for the fourth quarter of 2016 increased 6% to $5.8 million from $5.5 million in the same year-ago quarter. During the quarter, the Company saw revenue of printed products grow by 2% and technology sales, services and licensing revenue increase by 50%, primarily the result of an increase in AuthentiGuard sales.
- Costs and expenses totaled $5.7 million, a decrease of 65% from $16.1 million in the same year-ago period. The decrease was primarily due to a reduction in impairment charges incurred in the fourth quarter of 2016 compared to the fourth quarter of 2015. Absent the impairment charges in the 2015 quarter, costs and expenses for the fourth quarter of 2016 decreased approximately 5% from the adjusted 2015 quarter.
- During the fourth quarter of 2016, the Company had net income of $19,000, or $0.00 per share as compared to a net loss of $10.8 million or $(0.93) per share in the fourth quarter of 2015.
- Adjusted EBITDA(1) totaled $662,000 in the fourth quarter of 2016 compared to an Adjusted EBITDA loss of $65,000 in the fourth quarter of 2015. The significant improvement reflected the increase in revenues and the decrease in costs, especially direct costs of goods sold and professional fees during the fourth quarter of 2016.
Full Year 2016 Financial Highlights
- Revenue for full year 2016 increased 10% to $19.2 million from $17.5 million in 2015. During the year, printed products revenue increased 10% while technology sales, services and licensing revenues increased 5%. Printed products sales increases were propelled by increases in plastic card ID sales, especially cards that include technology, and increases in packaging sales, especially to the Company's two largest customers. Technology sales, services and licensing as a group benefited from revenues generated by the AuthentiGuard product line which more than offset revenue declines in that group's traditional IT services and hardware reselling businesses.
- Costs and expenses totaled $19.8 million, a decrease of 37% from $31.6 million in 2015. The decrease was primarily due to the reduction in impairment charges incurred in 2015 but not in 2016. Absent the impairment charges in 2015, costs and expenses in 2016 decreased approximately 8% from the adjusted 2015 amount. The decrease was driven by reductions in nearly every expense category, the most significant being a 58% decrease in professional fees and a 66% decrease in stock based compensation costs.
- During 2016, the Company reported a net loss of $950,000, or $(0.07) per share, as compared to net loss of $14.3 million or $(1.20) per share in 2015.
- Adjusted EBITDA totaled $1.1 million in 2016 compared to an Adjusted EBITDA loss of ($1.3 million) in 2015. The significant improvement reflected the increase in revenues and the decrease in costs, especially compensation costs and professional fees.
ABOUT DOCUMENT SECURITY SYSTEMS Document Security Systems, Inc.'s (NYSE MKT: DSS) products and solutions are used by governments, corporations and financial institutions to defeat fraud and to protect brands and digital information from the expanding world-wide counterfeiting problem. DSS technologies help ensure the authenticity of both digital and physical financial instruments, identification documents, sensitive publications, brand packaging and websites. DSS continuously invests in research and development to meet the ever-changing security needs of its clients and offers licensing of its patented technologies. For more information on DSS and its subsidiaries, please visit www.DSSsecure.com.
For more information on the AuthentiGuard Suite, please visit www.authentiguard.com.
Keep up-to-date on everything DSS, Follow Us on Facebook & Twitter!
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
Months Three Months
Ended Ended Year Ended Year Ended
December 31, December 31, % December 31, December 31, %
2016 2015 change 2016 2015 change
----------- ------------ ------ ----------- ------------ -----
Revenue
Printed
products $ 5,129,000 $ 5,022,000 2% $17,277,000 $ 15,701,000 10%
Techno-
logy
sales,
services
and
licens-
ing 657,000 437,000 50% 1,900,000 1,804,000 5%
----------- ------------ ----- ----------- ------------ -----
Total
reven-
ue $ 5,786,000 $ 5,459,000 6% $19,177,000 $ 17,505,000 10%
Costs and
expenses
Cost of
goods
sold,
exclu-
sive of
depreci-
ation
and
amortiz-
ation $ 3,304,000 $ 3,459,000 -4% $11,120,000 $ 10,665,000 4%
Sales,
general
and
adminis-
trative
compens-
ation 1,032,000 962,000 7% 3,764,000 3,983,000 -5%
Deprecia-
tion
and
amortiz-
ation 343,000 384,000 -11% 1,392,000 1,559,000 -11%
Professi-
onal
fees 109,000 384,000 -72% 813,000 1,918,000 -58%
Stock
based
compens-
ation 241,000 132,000 83% 329,000 974,000 -66%
Sales
and
market-
ing 175,000 78,000 124% 420,000 329,000 28%
Rent and
utili-
ties 153,000 165,000 -7% 602,000 675,000 -11%
Other
operat-
ing
expenses 268,000 330,000 -19% 963,000 922,000 4%
Research
and
develop-
ment 85,000 120,000 -29% 435,000 470,000 -7%
Impair-
ment of
goodwill - 9,593,000 -100% - 9,593,000 -100%
Impairment
of
invest-
ments - 500,000 -100% - 500,000 -100%
----------- ------------ ----- ----------- ------------ -----
Total
costs
and
expen-
ses $ 5,710,000 $ 16,107,000 -65% $19,838,000 $ 31,588,000 -37%
Operating
income
(loss) 76,000 (10,648,000) -101% (661,000) (14,083,000) -95%
Other
expenses
Interest
expense $ (62,000) $ (77,000) -19% $ (279,000) $ (335,000) -17%
Gain on
sales
of
invest-
ment and
equip-
ment - (26,000) -100% - 120,000 -100%
Net loss
on debt
modific-
ation
and
extingu-
ishment - - 0% - (19,000) -100%
Foreign
currency
transac-
tion
gain - - 0% - 29,000 -100%
----------- ------------ ----- ----------- ------------ -----
Other
expense $ (62,000) $ (103,000) -40% $ (279,000) $ (205,000) 36%
Loss
before
income
taxes 14,000 (10,751,000) -100% (939,000) (14,288,000) -93%
Income tax
expense (3,000) 8,000 -138% 11,000 22,000 -50%
----------- ------------ ----- ----------- ------------ -----
Net income
(loss) 19,000 (10,758,000) -100% (950,000) (14,309,000) -93%
----------- ------------ ----- ----------- ------------ -----
Loss per
common
share:
Basic
and
diluted $ 0.00 $ (0.93) -100% $ (0.07) $ (1.20) -94%
Shares
used in
computing
loss per
common
share:
Basic
and
diluted 12,977,903 11,613,491 12% 13,068,329 11,939,969 9%
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,
2016 2015
------------- -------------
ASSETS
Current assets:
Cash $ 5,871,738 $ 1,440,256
Restricted cash 177,609 293,043
Accounts receivable, net 1,890,981 2,097,433
Inventory 1,206,377 937,830
Prepaid expenses and other current assets 350,289 313,528
------------- -------------
Total current assets 9,496,994 5,082,090
Property, plant and equipment, net 4,573,841 5,003,818
Other assets 45,821 44,050
Goodwill 2,453,349 2,453,349
Other intangible assets, net 1,896,018 3,017,544
------------- -------------
Total assets $ 18,466,023 $ 15,600,851
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,212,653 $ 1,945,073
Accrued expenses and deferred revenue 1,290,593 955,066
Other current liabilities 2,996,310 1,009,660
Short-term debt - 3,984,316
Current portion of long-term debt, net 1,202,335 1,553,061
------------- -------------
Total current liabilities 7,701,891 9,447,176
Long-term debt, net 5,249,569 2,240,596
Other long-term liabilities 2,184,843 63,697
Deferred tax liability, net 45,619 162,107
Commitments and contingencies
Stockholders' equity
Common stock, $.02 par value; 200,000,000
shares authorized, 13,502,653 shares issued
and outstanding
(12,970,487 on December 31, 2015) 270,053 259,410
Additional paid-in capital 104,338,002 103,820,170
Accumulated other comprehensive loss (45,343) (63,697)
Accumulated deficit (101,278,611) (100,328,608)
------------- -------------
Total stockholders' equity 3,284,101 3,687,275
------------- -------------
Total liabilities and stockholders' equity $ 18,466,023 $ 15,600,851
============= =============
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2016 2015
------------- -------------
Cash flows from operating activities:
Net loss $ (950,003) $ (14,309,480)
Adjustments to reconcile net loss to net
cash from (used by) operating activities:
Depreciation and amortization 1,391,815 1,558,899
Stock based compensation 328,567 974,137
Paid in-kind interest 39,000 84,379
Gain on disposals of equipment, net - (20,431)
Impairment of goodwill - 9,592,848
Impairment of investment - 500,000
Net loss on debt modification and
extinguishment - 19,096
Change in deferred tax provision (116,488) 22,184
Foreign currency transaction gain - (29,400)
Amortization of deferred financing costs 21,351 -
Decrease (increase) in assets:
Accounts receivable 206,452 238
Inventory (268,547) (68,568)
Prepaid expenses and other current
assets (38,532) 198,423
Restricted cash 115,434 62,750
Increase (decrease) in liabilities:
Accounts payable 267,581 907,714
Accrued expenses and other liabilities 4,469,895 (469,419)
------------- -------------
Net cash from (used by) operating activities 5,466,525 (976,630)
Cash flows from investing activities:
Purchase of property, plant and equipment (269,870) (157,098)
Third-party funding received for acquisition
of patent assets 3,043,000 -
Acquisition of patent assets with third-
party funding (3,043,000) -
Proceeds from sale of equipment - 46,283
Proceeds from sale of intangible assets 495,000 -
Purchase of intangible assets (73,661) (5,159)
------------- -------------
Net cash from (used by) investing activities 151,469 (115,974)
Cash flows from financing activities:
Payments of long-term debt (1,386,420) (939,151)
Issuances of common stock, net of issuance
costs 199,908 1,128,336
------------- -------------
Net cash from (used by) financing activities (1,186,512) 189,185
Net increase (decrease) in cash 4,431,482 (903,419)
Cash at beginning of year 1,440,256 2,343,675
------------- -------------
Cash at end of year $ 5,871,738 $ 1,440,256
============= =============
(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, and impairments of investments and intangible assets. 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:
Three Months Ended December 31, Years Ended December 31,
% %
2016 2015 change 2016 2015 change
----------- ------------ ------ ----------- ------------ ------
(unaudited) (unaudited) (unaudited) (unaudited)
Net Loss: $ 19,000 $(10,759,000) -100% $ (950,000) $(14,309,000) -93%
Add backs:
Deprecia-
tion &
amortiz-
ation 343,000 384,000 -11% 1,392,000 1,559,000 -11%
Stock
based
compens-
ation 241,000 132,000 83% 329,000 974,000 -66%
Interest
expense 62,000 78,000 -21% 279,000 335,000 -17%
Amortiza-
tion of
note
discount
and net
loss on
debt
extingu-
ishment
and
modific-
ation - - 0% - 19,000 -100%
Income
Taxes (3,000) 8,000 -138% 11,000 22,000 -50%
Impairment
of
goodwill
and
invest-
ments - 10,093,000 -100% 10,093,000 -100%
Foreign
currency
transac-
tion
gain - - 0% - (29,000) -100%
----------- ------------ ----- ----------- ------------ -----
Adjusted
EBITDA 662,000 (64,000) -1134% 1,061,000 (1,336,000) -179%
=========== ============ ===== =========== ============ =====
Adjusted
EBITDA,
by group
(unaudited)
------------
Printed
Products $ 858,000 $ 774,000 11% $ 2,897,000 $ 2,183,000 33%
Technology
Manage-
ment 119,000 (435,000) -127% (556,000) (1,792,000) -69%
Corporate (315,000) (403,000) -22% (1,280,000) (1,727,000) -26%
----------- ------------ ----- ----------- ------------ -----
662,000 (64,000) -1134% 1,061,000 (1,336,000) -179%
=========== ============ ===== =========== ============ =====
For more information: Investor Relations Document Security Systems (585) 325-3610 Email: Email Contact
Source: Document Security Systems, Inc.