Business News

Document Security Systems, Inc. Announces Third Quarter 2013 Financial Results

Thursday 14. November 2013 - Document Security Systems, Inc. (NYSE MKT: DSS), ("DSS") a leading developer and integrator of secure cloud computing and security printing technologies, today announced its financial results for the third quarter of 2013, ended September 30.

Highlights for 3Q13:
— Revenue of $4.25 million increased 2% year over year
— Gross profit of $1.6 million increased 6% year over year
— Merger with Lexington Technology Group, Inc. completed on July 1, 2013
— Lexington Technology Group, Inc. renamed DSS Technology Management, Inc.
on August 2, 2013
“During the third quarter the Company made progress towards achieving several of its strategic priorities, including generating revenue from AuthentiGuard and acquiring two patent portfolios that further diversify our IP investments,” said Jeff Ronaldi, CEO of Document Security Systems. “Going forward, we plan to focus our investments on digital counterfeiting solutions and intellectual property given the high growth, high return characteristics of both areas. We are confident in the direction of the Company and look forward to communicating our ongoing progress against our strategic priorities over time.”
Revenues for the third quarter of 2013 were $4.25 million, a 2% increase over the third quarter of 2012, driven by a 14% increase in technology sales, services and licensing revenue. Gross profit for the third quarter of 2013 was $1.6 million, a 6% increase over the third quarter of 2012, driven by a 31% increase in gross profits from technology sales, services and licensing revenue.
Operating expenses increased 67% in the third quarter of 2013 to $4.3 million compared to the $2.6 million recorded in the third quarter of 2012, primarily due to a $1.5 million increase in intangible amortization and impairment expense. The significant increase in DSS’s intangible assets is a result of its merger with Lexington Technology Group, Inc. (“LTG”) on July 1, 2013. Absent the increase in intangible amortization and impairment expense, operating expenses would have increased 9% which reflects the increase in compensation costs, professional fees and other costs due to the addition of LTG, offset by a reduction in merger related professional fees as compared to the third quarter of 2012.
Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock based compensation and other non-recurring items, including professional fees and stock based compensation incurred for the Company’s merger with LTG) for the third quarter of 2013 was a loss of $556,000 versus the adjusted EBITDA loss of $61,000 for the third quarter of 2012, which generally reflects the additional expense base of DSS subsequent to its merger with LTG.
The Company recorded net income of $6.5 million for the third quarter of 2013, or $0.15 per share on both a basic and dilutive basis, compared to a net loss of $1.1 million or $0.05 per share in the third quarter of 2012. The significant change in earnings was primarily the result of one-time deferred tax benefit of $9.2 million recorded in the third quarter of 2013 in connection with the Company’s merger with LTG. The Company had a loss before income taxes of $2.7 million, versus a loss before income taxes in the third quarter of 2012 of $1.1 million.
Revenues for the first nine months of 2013 were $12.3 million, a 5% increase over the first nine months of 2012, driven by a 14% increase in technology sales, services and licensing revenue. Gross profit for the first nine months of 2013 reached $4.7 million, a 14% increase over the first nine months of 2012.
Operating expenses increased 50% in the first nine months of 2013 compared to the first nine months of 2012 to $10.3 million. This increase was primarily due to a $1.5 million increase in intangible amortization and impairment expense and higher merger related costs, including $723,000 of stock based compensation cost related to the merger, for the first nine months of 2013 as compared to the same period a year earlier.
Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock based compensation and other non-recurring items, including professional fees and stock based compensation incurred for the Company’s merger with LTG) for the first nine months of 2013 was a loss of $1.1 million, a 9% increase in the adjusted EBITDA loss from $1.0 million for the first nine months of 2012.
The Company recorded net income of $3.4 million for the first nine months of 2013, or $0.12 per share on both a basic and dilutive basis, compared to a net loss of $3.2 million or $0.15 per share for the first nine months of 2012. The significant change in earnings was primarily the result of one-time deferred tax benefit of $9.2 million recorded in the third quarter of 2013 in connection with the Company’s merger with LTG. The Company had a loss before income taxes of $5.8 million for the first nine months of 2013, versus a loss before income taxes in first nine months of 2012 of $3.2 million.
The Company’s balance sheet as of September 30, 2013 reflects the impact of the acquisition of LTG as of July 1, 2013. The cash balance of $3.2 million reflects the $6.6 million of cash that the Company received upon the closing of the LTG Merger, offset by the use of $2.75 million during the third quarter of 2013 to purchase patents and patent rights, and make an additional investment in VirtualAgility by the Company’s DSS Technology Management division. The September 30, 2013 balance sheet also reflects the acquisition accounting for the estimated fair values of LTG’s investments and intangible assets as of the Merger date of July 1, 2013, which significantly increased the Company’s investments, amortizable intangible assets, and goodwill.