Document Security Systems, Inc. Announces 2015 Fourth Quarter and Full-Year Financial Results
ROCHESTER, N.Y., March 30, 2016 /PRNewswire/ -- Document Security Systems, Inc. (NYSE MKT: DSS), (DSS), a leader in anti-counterfeiting and authentication solutions, reported results for the fourth quarter and for the full-year of 2015.
"During the fourth quarter of 2015, we continued to benefit from the performance of our core operating groups, which delivered strong revenue results while constraining costs. While a goodwill impairment taken by our technology management group hurt overall results for the quarter, our near positive adjusted EBITDA results for the quarter reiterates the strength of our business," said Jeff Ronaldi, CEO of Document Security Systems. Mr. Ronaldi continued: "Our business is benefiting from our strategy to intensify our focus on high growth, higher margin products and services. I am excited by our momentum as we enter 2016 and believe that we will continue to gain a wider audience as companies more earnestly address their counterfeiting and brand protection issues."
Q4 2015 Financial Highlights
Revenue for the fourth quarter of 2015 increased 13% to $5.5 million from $4.8 million in the same year-ago quarter. During the quarter, the Company had strong performance in both printed products revenues, which increased 14% and technology sales, services and licensing revenue, which increased 11%.
Costs and expenses totaled $16.1 million, a decrease of 50% from $32.4 million in the same year-ago period. The decrease was primarily due to a reduction in impairment charges incurred in the fourth quarter of 2015 compared to the fourth quarter of 2014. Absent the impairment charges, costs and expenses for the fourth quarter of 2015 totaled $6.0 million, which was a 16% decrease from the same year-ago period. The decrease was primarily driven by reductions in compensation costs and professional fees.
Net loss totaled $10.7 million or $(0.23) per share, as compared to net loss of $27.7 million or ($0.66) per share in the fourth quarter of 2015. For both periods, the net losses were significantly impacted by impairment charges. Absent the impairment charges, net loss would have been $640,000 in the fourth quarter of 2015 and $2,404,000 in the fourth quarter of 2014.
Adjusted EBITDA loss, a non-GAAP metric defined as earnings before interest, taxes, depreciation, amortization, and stock-based compensation, and asset impairments as well as other non-recurring items, totaled $68,000 in the fourth quarter of 2015 compared to an adjusted EBITDA loss of $737,000 in the fourth quarter of 2014 (see further discussion about the use of adjusted EBITDA, below). The significant improvement reflected both the increase in revenues and the decrease in costs in nearly every expense category.
Full Year 2015 Financial Highlights
Revenue in full year of 2015 decreased 4% to $17.5 million from $18.3 million in 2014. During the year, printed products revenue decreased 5% while technology sales, services and licensing revenues were essentially flat.
Costs and expenses totaled $31.6 million, a decrease of 51% from $64.8 million in 2014. The decrease was primarily due to the reduction in impairment charges incurred in 2015 compared to 2014. Absent the impairment charges, costs and expenses in 2015 totaled $21.5 million, which was a 22% decrease from 2014 amounts. The decrease was driven by reductions in nearly every expense category.
Net loss totaled $14.3 million or $(0.30) per share, as compared to net loss of $41.2 million or $(0.98) per share in 2014. For both periods, the net losses were significantly impacted by impairment charges. Absent the impairment charges, net loss was $4.2 million in 2015 and $8.8 million in 2014.
Adjusted EBITDA loss, a non-GAAP metric defined as earnings before interest, taxes, depreciation, amortization, and stock-based compensation, and asset impairments as well as other non-recurring items, totaled $1.3 million in 2015 compared to an adjusted EBITDA loss of $2.8 million in 2014 (see further discussion about the use of adjusted EBITDA, below).
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 continually 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 the AuthentiGuard Suite, please visit www.authentiguard.com. For more information on DSS and its subsidiaries, please visit www.DSSsecure.com. To follow DSS on Facebook, click here.
For More Information
Investor Relations
Document Security Systems
(585) 325-3610
Email: [email protected]
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, those disclosed in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 30, 2016. 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) |
||||||||||
| Year Ended December 31, 2015 |
Year Ended December 31, 2014 |
% change |
Three Months Ended December 31, 2015 |
Three Months Ended December 31, 2014 |
% change |
|||||
| Revenue |
||||||||||
| Printed products |
$ 15,701,000 |
$ 16,478,000 |
-5% |
$ 5,023,000 |
$ 4,418,000 |
14% |
||||
| Technology sales, services and licensing |
1,804,000 |
1,809,000 |
0% |
437,000 |
394,000 |
11% |
||||
| Total revenue |
$ 17,505,000 |
$ 18,287,000 |
-4% |
$ 5,460,000 |
$ 4,812,000 |
13% |
||||
| Costs and expenses |
||||||||||
| Cost of goods sold, exclusive of depreciation and amortization |
$ 10,665,000 |
$ 11,690,000 |
-9% |
$ 3,459,000 |
$ 3,184,000 |
9% |
||||
| Sales, general and administrative compensation |
3,983,000 |
4,677,000 |
-15% |
962,000 |
1,064,000 |
-10% |
||||
| Depreciation and amortization |
1,559,000 |
5,274,000 |
-70% |
384,000 |
1,351,000 |
-72% |
||||
| Professional fees |
1,918,000 |
1,773,000 |
8% |
384,000 |
343,000 |
12% |
||||
| Stock based compensation |
974,000 |
1,355,000 |
-28% |
132,000 |
250,000 |
-47% |
||||
| Sales and marketing |
329,000 |
531,000 |
-38% |
79,000 |
106,000 |
-25% |
||||
| Rent and utilities |
675,000 |
809,000 |
-17% |
165,000 |
242,000 |
-32% |
||||
| Other operating expenses |
922,000 |
1,160,000 |
-21% |
330,000 |
492,000 |
-33% |
||||
| Research and development |
470,000 |
462,000 |
2% |
120,000 |
118,000 |
2% |
||||
| Impairment of goodwill |
9,593,000 |
3,000,000 |
220% |
9,593,000 |
3,000,000 |
220% |
||||
| Impairment of intangible assets and investments |
500,000 |
34,035,000 |
-99% |
500,000 |
22,285,000 |
-98% |
||||
| Total costs and expenses |
$ 31,588,000 |
$ 64,766,000 |
-51% |
$ 16,108,000 |
$ 32,435,000 |
-50% |
||||
| Operating loss |
(14,083,000) |
(46,479,000) |
-70% |
(10,648,000) |
(27,623,000) |
-61% |
||||
| Other expenses |
||||||||||
| Interest expense |
$ (335,000) |
$ (317,000) |
6% |
$ (78,000) |
$ (65,000) |
20% |
||||
| Gain (loss) on disposals of investment and equipment, net |
120,000 |
- |
0% |
(26,000) |
- |
0% |
||||
| Foreign currency transaction gain |
29,000 |
2,000 |
1350% |
- |
- |
0% |
||||
| Net loss on debt modification and extinguishment |
(19,000) |
(52,000) |
-63% |
- |
- |
0% |
||||
| Other expense |
$ (205,000) |
$ (367,000) |
-44% |
$ (104,000) |
$ (65,000) |
60% |
||||
| Loss before income taxes |
(14,288,000) |
(46,846,000) |
-70% |
(10,752,000) |
(27,688,000) |
-61% |
||||
| Income tax expense (benefit) |
22,000 |
(989,000) |
-102% |
8,000 |
1,000 |
700% |
||||
| Net loss |
(14,309,000) |
(45,859,000) |
-69% |
(10,759,000) |
(27,689,000) |
-61% |
||||
| Less: loss attributable to noncontrolling interest |
- |
4,700,000 |
-100% |
- |
- |
-100% |
||||
| Net loss to common shareholders |
$ (14,309,000) |
$ (41,159,000) |
-65% |
$ (10,759,000) |
$ (27,689,000) |
-61% |
||||
| Loss per common share: |
||||||||||
| Basic and diluted |
$ (0.30) |
$ (0.98) |
-69% |
$ (0.23) |
$ (0.66) |
-65% |
||||
| Shares used in computing loss per common share: |
||||||||||
| Basic and diluted |
47,759,877 |
42,105,619 |
13% |
46,453,962 |
42,060,015 |
10% |
||||
| DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES |
|||||||||
| Consolidated Balance Sheets |
|||||||||
| As of December 31, |
|||||||||
| 2015 |
2014 |
||||||||
| ASSETS |
|||||||||
| Current assets: |
|||||||||
| Cash |
$ |
1,440,256 |
$ |
2,343,675 |
|||||
| Restricted cash |
293,043 |
355,793 |
|||||||
| Accounts receivable, net |
2,097,433 |
2,097,671 |
|||||||
| Inventory |
937,830 |
869,262 |
|||||||
| Prepaid expenses and other current assets |
313,528 |
425,671 |
|||||||
| Total current assets |
5,082,090 |
6,092,072 |
|||||||
| Property, plant and equipment, net |
5,003,818 |
5,016,539 |
|||||||
| Investments and other assets, net |
100,632 |
686,912 |
|||||||
| Goodwill |
2,453,349 |
12,046,197 |
|||||||
| Other intangible assets, net |
3,017,544 |
3,908,399 |
|||||||
| Total assets |
$ |
15,657,433 |
$ |
27,750,119 |
|||||
| LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||||||
| Current liabilities: |
|||||||||
| Accounts payable |
$ |
1,945,073 |
$ |
1,037,359 |
|||||
| Accrued expenses and other current liabilities |
1,964,726 |
1,997,241 |
|||||||
| Short-term debt |
4,023,379 |
- |
|||||||
| Current portion of long-term debt, net |
1,553,061 |
754,745 |
|||||||
| Total current liabilities |
9,486,239 |
3,789,345 |
|||||||
| Long-term debt, net |
2,258,115 |
7,439,036 |
|||||||
| Other long-term liabilities |
63,697 |
520,180 |
|||||||
| Deferred tax liability, net |
162,107 |
145,759 |
|||||||
| Commitments and contingencies |
|||||||||
| Stockholders' equity |
|||||||||
| Common stock, $.02 par value; 200,000,000 shares authorized, 51,881,948 shares issued and outstanding |
|||||||||
| (46,172,404 on December 31, 2014) |
1,037,639 |
923,448 |
|||||||
| Additional paid-in capital |
103,041,941 |
101,012,659 |
|||||||
| Accumulated other comprehensive loss |
(63,697) |
(61,180) |
|||||||
| Accumulated deficit |
(100,328,608) |
(86,019,128) |
|||||||
| Total stockholders' equity |
3,687,275 |
15,855,799 |
|||||||
| Total liabilities and stockholders' equity |
$ |
15,657,433 |
$ |
27,750,119 |
|||||
| DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES |
||||||||
| Consolidated Statements of Cash Flows |
||||||||
| For the Years Ended December 31, |
||||||||
| 2015 |
2014 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(14,309,480) |
$ |
(45,857,052) |
||||
| Adjustments to reconcile net loss to net cash used by operating activities: |
||||||||
| Depreciation and amortization |
1,558,899 |
5,274,323 |
||||||
| Stock based compensation |
974,137 |
1,355,430 |
||||||
| Paid in-kind interest |
84,379 |
48,000 |
||||||
| Gain on disposals of equipment, net |
(20,431) |
- |
||||||
| Amortization of note discount |
- |
22,707 |
||||||
| Impairment of goodwill |
9,592,848 |
3,000,000 |
||||||
| Impairment of intangible assets and investments inclusive of noncontrolling interest |
500,000 |
34,034,862 |
||||||
| Net loss on debt modification and extinguishment |
19,096 |
- |
||||||
| Change in deferred tax provision |
22,184 |
(988,630) |
||||||
| Foreign currency transaction gain |
(29,400) |
(2,305) |
||||||
| Decrease (increase) in assets: |
||||||||
| Accounts receivable |
238 |
51,452 |
||||||
| Inventory |
(68,568) |
(34,283) |
||||||
| Prepaid expenses and other assets |
198,423 |
30,081 |
||||||
| Restricted cash |
62,750 |
144,207 |
||||||
| Increase (decrease) in liabilities: |
||||||||
| Accounts payable |
907,714 |
(384,406) |
||||||
| Accrued expenses and other liabilities |
(469,419) |
915,376 |
||||||
| Net cash used by operating activities |
(976,630) |
(2,390,238) |
||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(157,098) |
(280,902) |
||||||
| Sale of equipment |
46,283 |
- |
||||||
| Purchase of investments |
- |
(750,000) |
||||||
| Purchase of intangible assets |
(5,159) |
(1,243,714) |
||||||
| Net cash used by investing activities |
(115,974) |
(2,274,616) |
||||||
| Cash flows from financing activities: |
||||||||
| Net payments on revolving lines of credit |
- |
(158,087) |
||||||
| Payments of long-term debt |
(939,151) |
(616,393) |
||||||
| Borrowings of long-term debt |
- |
4,041,000 |
||||||
| Issuances of common stock, net of issuance costs |
1,128,336 |
1,764,978 |
||||||
| Net cash provided by financing activities |
189,185 |
5,031,498 |
||||||
| Net (decrease) increase in cash |
(903,419) |
366,644 |
||||||
| Cash beginning of year |
2,343,675 |
1,977,031 |
||||||
| Cash end of year |
$ |
1,440,256 |
$ |
2,343,675 |
||||
About the Presentation of 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 its 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 costs related to the Company's merger with Lexington Technology Group, all 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, |
||||||||
| 2015 |
2014 |
% change |
2015 |
2014 |
% change |
||||
| (unaudited) |
(unaudited) |
(unaudited) |
(unaudited) |
||||||
| Net Loss: |
$ (10,759,000) |
$ (27,689,000) |
-61% |
$ (14,309,000) |
$ (41,157,000) |
-65% |
|||
| Add backs: |
|||||||||
| Depreciation & amortization |
384,000 |
1,351,000 |
-72% |
1,559,000 |
5,274,000 |
-70% |
|||
| Stock based compensation |
132,000 |
250,000 |
-47% |
974,000 |
1,355,000 |
-28% |
|||
| Interest expense |
78,000 |
65,000 |
20% |
335,000 |
317,000 |
6% |
|||
| Amortization of note discount and net loss on debt extinguishment and modification |
- |
- |
0% |
19,000 |
52,000 |
-63% |
|||
| Income Taxes |
8,000 |
1,000 |
700% |
22,000 |
(989,000) |
-102% |
|||
| Foreign currency transaction gain |
- |
- |
0% |
(29,000) |
(2,000) |
1350% |
|||
| Impairment of intangible assets and investments, net of noncontrolling interests |
10,093,000 |
25,285,000 |
-60% |
10,093,000 |
32,335,000 |
-69% |
|||
| Adjusted EBITDA |
(64,000) |
(737,000) |
-91% |
(1,336,000) |
(2,815,000) |
-53% |
|||
| Adjusted EBITDA, by group (unaudited) |
|||||||||
| Printed Products |
$ 774,000 |
$ 490,000 |
58% |
$ 2,183,000 |
$ 1,845,000 |
18% |
|||
| Technology Management |
(435,000) |
(534,000) |
-19% |
(1,792,000) |
(1,877,000) |
-5% |
|||
| Corporate |
(403,000) |
(693,000) |
-42% |
(1,727,000) |
(2,783,000) |
-38% |
|||
| (64,000) |
(737,000) |
-91% |
(1,336,000) |
(2,815,000) |
-53% |
||||
SOURCE Document Security Systems, Inc.
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