Business News
Document Security Systems Reports Second Quarter of 2014 Financial Results
Tuesday 19. August 2014 - Document Security Systems, Inc. (NYSE MKT: DSS)(DSS), a leader in anti-counterfeiting and authentication solutions, reported results for the second quarter ending June 30, 2014.
Q2 2014 Operational Highlights
Delivered first fully-integrated AuthentiGuard customer for DSS’ secure digital application and labeling.
Filed a patent infringement lawsuit against Lenovo (United States), Inc. in the District Court for the Eastern District of Texas, with the case currently in the pleadings stage.
Acquired approximately 90 active patents covering certain methods and processes in the semiconductor industry, bringing the company’s patent portfolio to more than 120 active patents issued in the U.S. and abroad, and 25 patent applications pending.
At quarter end, the company had seven active disputes at various stages of the monetization process.
Q2 2014 Financial Highlights
Revenue for the second quarter of 2014 increased 14% to $4.9 million from $4.3 million in the same year-ago quarter. Printed product revenue, which includes sales of packaging, printing and plastics, increased 15% to $4.4 million from $3.8 million in the same year-ago period. Technology sales, services and licensing revenues increased 4% to $476,000 from $458,000 in the year-ago period.
Costs of goods and expenses totaled $7.1 million, an increase of 16% from $6.1 million in the same year-ago period. The increase primarily reflected depreciation and amortization costs of $1.3 million for Q2 2014 compared to $229,000 in the same year-ago period. This increase was partially offset by a 69% decrease in stock-based compensation expense during Q2 2014.
Cost of goods sold, excluding depreciation and amortization, increased 26% to $3.2 million compared to $2.5 million in the same year-ago period, driven by a higher percentage of packaging sales as a percentage of total printed products sales in the second quarter of 2014.
Adjusted EBITDA loss, a non-GAAP metric defined as earnings before interest, taxes, depreciation, amortization, and stock-based compensation, as well as other non-recurring items, totaled $633,000 compared to an adjusted EBITDA loss of $171,000 in the same year-ago period (see further discussion about the use of adjusted EBITDA, below). The increase in adjusted EBITDA loss reflected higher professional fees incurred for the company’s IP monetization business in Q2 2014 compared to the year-ago quarter, where the majority of the professional fees were incurred from the company’s merger with Lexington Technology Group (LTG) in July 2013.
Net Loss totaled $2.3 million or $(0.06) per basic and diluted share, as compared to a net loss of $1.9 million or $(0.09) per basic and diluted share in the second quarter of 2013.
Management Commentary
“We saw a particularly strong sequential increase in revenue in the second quarter, driven by demand for our printed products, including the timing of certain packaging orders that slipped from Q1 to Q2,” said Jeff Ronaldi, the company’s CEO. “Looking at our results on a comparative first half basis, revenue was a record overall for the first six months of the year, up 6% from the same period a year ago.
“Q2 was also highlighted by our first fully-integrated AuthentiGuard sale to a customer for printing and hosting, along with the customized mobile application. This win reaffirms the strong value proposition of our AuthentiSuite platform, especially when integrated with our secure printing and packaging capabilities.
“Along those lines, our sales team has been effectively building and expanding our AuthentiGuard pipeline of prospective customers. We are currently in varying stages with several national brands about implementing our AuthentiGuard technology.
“AuthentiGuard is an ideal representation of our business model, which involves developing and acquiring IP that enables us to bring innovative product and service offerings to market, while actively licensing our IP portfolio.
“A major goal for us this year and going forward is to grow and diversify our intellectual property portfolio. Since 2012, we have systematically expanded our patent portfolio from 15 issued patents to more than 120 active patents today, along with seven active cases on file. Looking ahead, we expect to have 10 cases on file by yearend and at least 15 by the end of 2015. Our expectations for the future remain high as we build upon the momentum we’ve established and pursue the widening pipeline of opportunities ahead.”
Intellectual Property Enforcement
DSS provided an update on the status of its six intellectual property cases:
Document Security Systems, Inc. v. Coupons.com Incorporated (6:11-cv-06528-CJS-MWP)
In October 2011, DSS initiated litigation against Coupons.com alleging, among other things, that Coupons.com misused DSS’s proprietary block-out technology in violation of the terms of a nondisclosure agreement between the parties. On July 10, 2014 the US District Court for the Western District of New York heard oral arguments in connection with Coupons.com’s motion for Summary Judgment. No decision has been rendered yet on the motion.
Bascom Research, LLC v. Facebook, Inc., LinkedIn Corporation et al (CAND-3-12-cv-06293; CAND-3-12-cv-06294)
In October 2012, Bascom Research, a subsidiary of Lexington Technology Group, Inc. (LTG), which was acquired by DSS in July 2013, initiated litigation with Facebook, Inc., LinkedIn Corporation and three other defendants in the US District Court for the Eastern District of Virginia. The complaint alleged infringement by the defendants of four patents that are instrumental to social and business networking technology and related to the manner in which users and application developers on the Facebook and LinkedIn platforms make connections between “objects” such as photos, people, events and pages.
In January 2013, all five cases were transferred to the US District Court for the Northern District of California. In April and May of 2013, LTG announced that Bascom Research had reached settlements with two of the named defendants. Currently, Facebook and LinkedIn remain as defendants in the litigation.
On January 15, 2014, these two cases were stayed by the US District Court for the Northern District of California pending the outcome of Alice Corp v. CLS Bank in the United States Supreme Court, which was decided on June 24, 2014. Following this decision, a case management conference was scheduled for August 22, 2014, at which time the parties will propose timetables for the remainder of the case.
On May 22, 2014, Facebook, Inc. filed a Petition for Covered Business Method (CBM) Patent Review with the USPTO’s Patent Trial and Appeal Board. Bascom Research has until September 3, 2014 to file a preliminary response to the CBM petition.
VirtualAgility, Inc. v. Salesforce.com, Inc. et al* (TXED-2-13-cv-00011)
On March 5, 2013, Lexington Technology Group (now DSS Technology Management) made a strategic investment in VirtualAgility, Inc.
On January 5, 2013, prior to DSS’s investment, VirtualAgility initiated litigation against Salesforce.com and a number of Salesforce’s customers in the US District Court for the Eastern District of Texas. VirtualAgility’s complaint against Salesforce.com alleges infringement of one of five VirtualAgility patents that enable user-friendly programming platforms that facilitate the creation of sophisticated business applications without programming.
On February 12, 2014, the United States Court of Appeals for the US Circuit overturned a decision rendered by the US District Court for the Eastern District of Texas, and granted a temporary stay of the case in light of Salesforce.com’s Petition for Covered Business Method (CBM) Patent Review pending before the USPTO’s Patent Trial and Appeal Board (PTAB).
On July 10, 2014, a three-judge panel of the US Circuit issued a divided opinion granting a stay pending the CBM proceedings. Oral argument in the CBM proceeding was held on July 14, 2014.
DSS Technology Management, Inc. (DSSTM) v. Taiwan Semiconductor Manufacturing Company, Ltd. (TSMC) et al (TXED-2-14-cv-00199)
On March 10, 2014, DSSTM initiated litigation with TSMC, Samsung Electronics Co. Inc., and NEC Corporation of America in the US District Court for the Eastern District of Texas. DSSTM’s complaint against these companies alleges infringement of DSS patents relating to a semiconductor manufacturing process called “double-patterning.”
On June 24, 2014, TSMC filed a petition for Inter Partes Review (IPR) with the USPTO Patent Trial and Appeal Board, and DSSTM has until October 17, 2014 to file a preliminary response.
DSS Technology Management, Inc. (DSSTM) v. Apple, Inc. (TXED-6-13-cv-00919)
On November 29, 2013, DSSTM initiated litigation against Apple, Inc. in the US District Court for the Eastern District of Texas. DSSTM’s complaint alleges infringement by Apple of DSS patents that relate to systems and methods of using low power wireless peripheral devices.
On March 3, 2014, Apple filed a motion to transfer venue of the case from the Eastern District of Texas to the Northern District of California, which is pending a ruling by the District Court for the Eastern District of Texas.
DSS Technology Management, Inc. (DSSTM) v. Lenovo (United States), Inc. (TXED-6-14-cv-00525)
On May 30, 2014, DSSTM initiated litigation against Lenovo (United States), Inc. in the US District Court for the Eastern District of Texas. DSSTM’s complaint alleges infringement by Lenovo of DSS patents that relate to systems and methods of using low power wireless peripheral devices. The case is currently in the pleadings stage.