DSS Inc (DSS) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Document Security Systems 2014 first-quarter results. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference on to your host, Peter Salkowski. Thank you, you may begin.

各位好，歡迎參加文件安全系統2014年第一季業績發表會。 （操作說明）提醒各位，本次會議正在錄製。現在我將會議交給主持人彼得·薩爾科夫斯基先生。謝謝，您可以開始了。

Good afternoon, and I would like to thank everyone for joining us today for the Document Security Systems first-quarter 2014 earnings conference call. Joining me on today's call are CEO Jeff Ronaldi and CFO Phil Jones. Following Phil and Jeff's prepared remarks, we will open the call for questions.

下午好，感謝各位今天參加文件安全系統公司2014年第一季財報電話會議。今天與我一同出席會議的有執行長傑夫·羅納爾迪和財務長菲爾·瓊斯。在菲爾和傑夫作完演講後，我們將進入問答環節。

This afternoon, DSS issued a press release announcing its first-quarter 2014 financial results. That press release is available on the Company's website at www.DSSsecure.com.

今天下午，DSS發布新聞稿，公佈了其2014年第一季財務業績。新聞稿可在本公司網站www.DSSsecure.com上查閱。

Before management begins I will review the Company's Safe Harbor statement. Forward-looking statements on this call -- including, without limitation, statements related to the Company's plans, strategies, objectives, expectations, potential value, intentions, and the 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.

在管理層開始發言之前，我將回顧公司的「安全港」聲明。本次電話會議中的前瞻性陳述——包括但不限於與公司計劃、戰略、目標、預期、潛在價值、意圖以及資源充足性相關的陳述——均依據《私人證券訴訟改革法案》的安全港條款作出，並包含“相信”、“預期”、“預計”、“計劃”、“打算”等詞語及類似短語。這些前瞻性陳述受風險和不確定性因素的影響，可能導致實際結果與預期結果有重大差異。

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 fiscal year ended December 31, 2013, previously filed with the Securities and Exchange Commission.

除了前瞻性聲明中特別提到的因素外，其他可能導致這些差異的重要因素、風險和不確定性包括但不限於公司截至 2013 年 12 月 31 日的財政年度的 10-K 表格年度報告風險因素部分中披露的因素、風險和不確定性，該報告此前已提交給美國證券交易委員會。

Forward-looking statements made as part of this call are made as of today, May 13, 2014, 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. During the call today, management will discuss adjusted EBITDA. In the Company's press release issued today, you will find additional disclosures regarding the non-GAAP financial measures and reconciliations of non-GAAP net loss to adjusted EBITDA.

本次電話會議中所作的前瞻性陳述僅代表截至2014年5月13日的信息，本公司不承擔更新這些前瞻性陳述或解釋實際結果可能與前瞻性陳述中預測結果存在差異的原因的義務。在今天的電話會議中，管理層將討論調整後EBITDA。您可以在公司今天發布的新聞稿中找到有關非GAAP財務指標以及非GAAP淨虧損與調整後EBITDA調節表的更多揭露資訊。

I would like to remind everyone that this call will be recorded and made available for replay via a link unavailable in the Investor Relations section of the Company's website at www.DSSsecure.com. Also, for those listening to today's call via webcast who would like to submit a question to management, please click the ask a question link located in the webcast window. If we aren't able to address all your questions on today's call, please contact Investor Relations and we will be happy to answer them.

我謹提醒各位，本次電話會議將被錄音，錄音回放將透過公司網站www.DSSsecure.com投資者關係頁面提供的連結提供，但該連結無法直接存取。此外，如果您今天透過網路直播收聽會議，並希望向管理層提問，請點擊網路直播視窗中的「提問」連結。如果您的問題在今天的電話會議中未能得到解答，請聯絡投資者關係部門，我們將竭誠為您解答。

I would now like to turn the call over to Phil Jones, Chief Financial Officer of DSS. Phil?

現在我想把電話交給DSS的財務長菲爾瓊斯。菲爾？

Thank you, Peter. Today we announced first quarter financial results, which are summarized in the press release we published after market close today, and detailed in the Form 10-Q, which was filed with the SEC as well today.

謝謝你，彼得。今天我們公佈了第一季財務業績，相關摘要已在今天收盤後發布的新聞稿中發布，詳細資訊則在今天提交給美國證券交易委員會的10-Q表格中列出。

For the first quarter, total revenue was $3.6 million, a year-over-year decline of $142,000. Printed product revenue declined $115,000 to $3.2 million in the first quarter, with technology revenues down $27,000 to $464,000.

第一季總營收為 360 萬美元，年減 14.2 萬美元。印刷產品收入下降 11.5 萬美元至 320 萬美元，技術收入下降 2.7 萬美元至 46.4 萬美元。

Our first-quarter printed products results were impacted primarily by the timing of several packaging orders that slipped from March into April, which, in fact, have equated to stronger-than-normal April sales for the printed products group. Therefore, our expectations for this group in 2014 remain intact.

第一季印刷產品業績主要受到部分包裝訂單交付時間的影響，這些訂單從3月推遲到4月，但實際上，這反而使印刷產品部門4月份的銷售額高於往年同期水準。因此，我們對該部門2014年的業績預期保持不變。

First-quarter costs and expenses increased 35.7% year over year to $6.6 million, driven primarily by a significant increase in non-cash based patent amortization and stock-based compensation expense. The higher depreciation and amortization expense was driven by the substantial increase in intangible assets on the balance sheet resulting from our merger with Lexington Technology Group that closed at the beginning of the third quarter of 2013. And, thus, these costs were not a component of the first-quarter 2013 results.

第一季成本和費用年增35.7%至660萬美元，主要原因是專利攤提（非現金支出）和股權激勵費用大幅增加。折舊和攤銷費用增加是由於我們與萊剋星頓科技集團的合併導致資產負債表上的無形資產大幅增加，該合併已於2013年第三季初完成。因此，這些成本並未計入2013年第一季業績。

Cash-based expenses were up 10.1% versus the first quarter of 2013, which primarily reflect increases in compensation costs, professional fees, and sales and marketing costs. The increases in compensation costs and professional fees were primarily the result of our new technology management division created as a result of the Lexington merger. Professional fees include costs for lawyers and consultants utilized by our DSS technology management division for its IP monetization efforts. While substantial during the quarter, these costs were geared toward our efforts to add to and further strengthen our IP portfolio during the quarter.

與2013年第一季相比，現金支出增加了10.1%，主要反映了薪酬成本、專業服務費以及銷售和行銷成本的增加。薪資成本和專業服務費的成長主要是由於我們因與Lexington合併而成立了新的技術管理部門。專業服務費包括DSS技術管理部門為實現知識產權貨幣化而聘請的律師和顧問的費用。雖然本季這些費用金額較大，但其目的是為了在本季增加並進一步加強我們的智慧財產權組合。

Net loss for the first quarter was approximately $3.1 million, or a loss of $0.07 per basic and diluted share, which compares to a net loss of $1.1 million, or $0.05 per basic and diluted share, in the first quarter of 2013. Once again, we believe adjusted EBITDA is a good measure of the Company's performance. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, and other nonrecurring items such as and including merger-related professional fees.

第一季淨虧損約310萬美元，即每股基本及攤薄虧損0.07美元，而2013年第一季淨虧損為110萬美元，即每股基本及攤薄虧損0.05美元。我們再次認為，調整後EBITDA是衡量公司績效的良好指標。調整後EBITDA的定義為扣除利息、稅項、折舊、攤提、股權激勵費用以及其他非經常性項目（例如併購相關專業費用）之前的收益。

For the first quarter, the Company had a consolidated adjusted EBITDA loss of $1.1 million, an increase of 172% from the year-ago period. Printed products' adjusted EBITDA was $283,000, a year-over-year decline of $35,000. When looking at the year-over-year comparison for the printed products group, it's important to note that certain licensing revenue that was contained in the 2013 results for the group was reclassified to the technology group to reflect our post-merger structure in 2014.

該公司第一季綜合調整後 EBITDA 虧損 110 萬美元，較上年同期成長 172%。印刷產品業務的調整後 EBITDA 為 28.3 萬美元，年減 3.5 萬美元。在比較印刷產品業務的年比業績時，需要注意的是，該業務 2013 年業績中包含的部分授權收入已於 2014 年重新歸類至技術業務，以反映我們合併後的組織架構。

If this licensing amount was included in the 2014 amount, the printed products group would have shown an approximately $150,000 increase in adjusted EBITDA profits. So once again, our printed products group -- which incorporates all of our printing, packaging, and plastics operations -- is well-positioned to continue to deliver reliable financial performance and serves as a solid financial base for our other, higher growth ventures.

如果將這筆許可費計入2014年的金額，印刷產品集團的調整後EBITDA利潤將增加約15萬美元。因此，我們的印刷產品集團——涵蓋了我們所有的印刷、包裝和塑膠業務——再次證明其有能力繼續保持可靠的財務業績，並為我們其他高成長業務提供堅實的財務基礎。

The first-quarter adjusted EBITDA loss for our technology group was $460,000, down from a loss of $188,000 in the prior-year period. However, the prior-year period did not include any of the DSS technology management operations. The first quarter showed a 22% improvement from the adjusted EBITDA loss of $602,000 reported for that group in the fourth quarter of 2013, which is a more comparable period. Once again, adjusted EBITDA is a non-GAAP measure of performance. Please refer to the table included in our earnings release from today for a reconciliation of our GAAP net loss to adjusted EBITDA.

我們技術集團第一季調整後 EBITDA 虧損為 46 萬美元，較上年同期的 18.8 萬美元虧損有所收窄。然而，上年同期數據並未包含任何 DSS 技術管理業務。與 2013 年第四季（更具可比性）該集團報告的 60.2 萬美元調整後 EBITDA 虧損相比，第一季業績改善了 22%。再次強調，調整後 EBITDA 並非 GAAP 財務指標。請參閱我們今天發布的盈利報告中的表格，以了解 GAAP 淨虧損與調整後 EBITDA 的調整表。

Moving to the balance sheet, as of March 31, 2014, the Company had a cash balance of approximately $3.4 million, of which $500,000 was classified as restricted cash. This compares to a combined cash balance on December 31, 2013, of approximately $2.5 million. The quarter's increase in cash was due primarily to the receipt of $3.0 million of up to $4.5 million in commitments we received from a third-party IP funding source. As discussed in our previous calls, one component of our IP strategy is to work with specialized investors who wish to participate directly in the IP monetization asset class.

從資產負債表來看，截至2014年3月31日，公司現金餘額約340萬美元，其中50萬美元為受限現金。相較之下，截至2013年12月31日，公司現金餘額約250萬美元。本季現金增加的主要原因是收到了來自第三方智慧財產權融資機構的300萬美元承諾投資，該承諾投資額最高可達450萬美元。正如我們在先前的電話會議中所述，我們知識產權策略的一個組成部分是與希望直接參與知識產權貨幣化資產類別的專業投資者合作。

We are very pleased to have accomplished this second funding on favorable terms during the quarter, which was a limited recourse note classified as long-term debt. The funding strengthened our balance sheet while also allowing us to make additional investments during the quarter of $750,000 that further added to our growing IP portfolio.

我們非常高興在本季以優惠的條件完成了第二筆融資，這是一筆有限追索權票據，被歸類為長期債務。這筆資金不僅增強了我們的資產負債表，還使我們能夠在本季度進行75萬美元的額外投資，進一步壯大了我們不斷增長的智慧財產權組合。

Finally, as many of you know, there are 7.5 million of our common shares currently being held in escrow related to this Lexington merger. As of the date of this call, the criteria for the vesting of these shares was not met, and the shares will be retired on July 1, 2014, which will reduce our shares outstanding by 14% to 42 million.

最後，如各位所知，目前有750萬股普通股因與萊剋星頓合併而處於託管狀態。截至本次電話會議之日，這些股份尚未達到歸屬條件，因此將於2014年7月1日註銷，屆時我們的流通股將減少14%，至4,200萬股。

With that, I will turn the call over to our CEO, Jeff Ronaldi. Jeff?

接下來，我將把電話轉給我們的執行長傑夫·羅納爾迪。傑夫？

Thank you, Phil. I'd like to thank everyone for your continued support of DSS. While the Company began the year slower than anticipated, we are still optimistic regarding our prospects in 2014 for several reasons. This quarter, as Phil pointed out, despite the timing of several packaging orders that slipped from March into April, the printed products group posted positive adjusted EBITDA. This is evidence of the hard work and important decisions management has made.

謝謝菲爾。我也要感謝大家一直以來對DSS的支持。雖然公司年初的業績低於預期，但我們對2014年的前景依然充滿信心，原因有幾點。正如菲爾指出的，本季度儘管一些包裝訂單從3月推遲到4月，印刷產品集團的調整後EBITDA仍然為正。這證明了管理階層付出的努力和做出的重要決策。

During the first quarter, we finished combining our printing and packaging business to a single facility to better align improved profitability of these operations. We expect to see cost savings in 2014 as a result of our efforts. We are managing this area of the business for cash flow and expect to invest the majority of the cash generated from our printing and packaging operations into the higher growth areas of our business.

第一季度，我們完成了印刷和包裝業務的合併，將兩家公司合併到同一家工廠，以更好地提升這些業務的獲利能力。我們預計，這些措施將在2014年帶來成本節約。我們將對這部分業務進行現金流管理，並計劃將印刷和包裝業務產生的現金大部分投資於公司其他高成長領域。

One of the high-growth areas is our AuthentiGuard line of products. During the first quarter, we filmed a successful media appearance on Fox & Friends, where I had the opportunity to give a live demo of our product. If you hadn't already seen it, the demo is available on the landing page of our AuthentiGuard website.

我們的AuthentiGuard系列產品是成長最快的領域之一。第一季度，我們成功錄製了一段在福克斯新聞頻道（Fox & Friends）的節目，我在節目中現場示範了我們的產品。如果您還沒看過，可以在AuthentiGuard網站的首頁找到示範影片。

As we announced on our last earnings call, we recently invited former NFL player Pat McInally on board to represent our anti-counterfeiting and authentication technologies in the sports merchandise and entertainment markets. As a result of both of these efforts, we are getting greater visibility on the pipeline and added our second AuthentiGuard customer.

正如我們在上次財報電話會議上宣布的那樣，我們近期邀請了前NFL球員帕特·麥克納利(Pat McInally)加入我們，代表我們在體育用品和娛樂市場推廣我們的防偽和認證技術。由於這兩項舉措，我們對未來的發展方向有了更清晰的了解，並新增了第二位AuthentiGuard客戶。

Moving to an update to our technology group, up to this point we have invested in a diversified portfolio comprised of various technology patents, including those related to wireless peripherals and semiconductors. Using this IP as a foundation of our portfolio, we filed patent infringement claims against Facebook, LinkedIn, Apple, Samsung, TSMC, and others. The most recent developments for our IP portfolio include the announcement that the Eastern District of Texas had denied the defendants' motion to stay the VirtualAgility case. However, the market continues to be temporarily stayed pending a decision by the Federal Circuit.

接下來談談我們技術團隊的最新進展。迄今為止，我們已投資建構了一個多元化的專利組合，涵蓋多種技術專利，包括無線週邊和半導體相關的專利。我們以此智慧財產權組合為基礎，對Facebook、LinkedIn、蘋果、三星、台積電等公司提起了專利侵權訴訟。我們智慧財產權組合的最新進展包括：德州東區地方法院駁回了被告方提出的中止VirtualAgility案件審理的動議。然而，由於聯邦巡迴上訴法院尚未作出裁決，該案的審理仍處於暫時中止狀態。

We also announced the stay of the Bascom Research market hearing in January in light of the expected Supreme Court ruling on the Alice v. CLS Bank case in June or July of this year. As we understand it, the Alice case covers the question of whether the computer automation have a bookkeeping process can be patented. Our interpretation of the case is that, while some of the questions of the case appear broad, we believe it's likely the case will be interpreted narrowly. That is, we believe the court will issue a decision as to the specific technology of the Alice case, but not necessarily rule on the overall patentability of software.

鑑於最高法院預計將於今年六月或七月就 Alice v CLS 銀行一案作出裁決，我們於一月份宣布暫停 Bascom Research 的市場聽證會。據我們了解，Alice 案涉及電腦自動化記帳流程是否可以申請專利的問題。我們對該案的解讀是，儘管其中一些問題看似寬泛，但我們認為該案很可能會被狹義地解釋。也就是說，我們認為法院將就 Alice 案中涉及的具體技術作出裁決，但不一定會對軟體的整體可專利性作出裁決。

Several prominent industry analysts also support our view. Dennis Crouch of the University of Missouri School of Law writes that, quote, there is some potential that the decision will be rather small and that this result would essentially parallel the results of Bilski v. Kappos and potentially add nothing of substance to the law, end quote. In addition, other top IP bloggers believe that it's likely the plaintiff's patent in the Alice case will be invalidated -- in other words, the plaintiff will lose -- but the rules governing software patentability will not change. With that said, we await the ruling by the Supreme Court on the Alice case.

多位知名產業分析師也支持我們的觀點。密蘇里大學法學院的丹尼斯·克勞奇(Dennis Crouch)寫道：「該判決可能影響甚微，其結果與比爾斯基訴卡波斯案(Bilski v. Kappos)的判決結果基本相同，可能不會對法律做出任何實質性貢獻。」此外，其他一些頂尖的智慧財產權博主也認為，原告質訴案(Alice case)——但不會改變原告專利的規則。有鑑於此，我們仍在等待最高法院對愛麗絲案的裁決。

Now to an exciting development on the IP front. As disclosed in our press release today, I'm pleased to announce that we recently contracted to purchase another strategic and robust portfolio of patents. In addition to significantly expanding our hardware patent portfolio, this acquisition will provide us with additional freedom to further develop AuthentiGuard. In keeping with our previously discussed IP strategy, we will look for multiple ways to monetize this IP and, in fact, see the Company's investment opening a door for potential new products through R&D.

現在來說說知識產權方面令人振奮的進展。正如我們今天發布的新聞稿中所披露的，我很高興地宣布，我們近期已簽訂合同，收購另一項具有戰略意義且實力雄厚的專利組合。此次收購不僅將顯著擴展我們的硬體專利組合，還將為我們進一步開發 AuthentiGuard 提供更大的自由。秉承我們之前討論過的智慧財產權策略，我們將尋求多種途徑來實現這些智慧財產權的商業價值，事實上，我們認為公司的這項投資將為透過研發開發潛在的新產品打開大門。

It's important to mention that as the IP litigation space continues to evolve, we believe we structured the Company to withstand any changes brought by the legislation on the horizon. The legislation under consideration includes disclosing parties of interest and loser pay outcomes. While this legislation may affect other companies in the space, we do not see current legislation having a strong impact on DSS or its operations.

值得一提的是，隨著智慧財產權訴訟領域的不斷發展，我們相信公司架構已足以應對未來可能出台的任何法律法規所帶來的變化。目前正在審議的法案包括揭露利害關係人資訊和敗訴方賠償金額。雖然這項立法可能會影響該領域的其他公司，但我們認為目前的立法不會對DSS及其營運產生重大影響。

Further, we have carefully invested in a range of important patent assets that support our AuthentiGuard product, thereby successfully linking much of our IP to DSS's current operations. It is important to note that in order to make strategic IP investments to grow our technology group, we have received funding from outside sources. To date, we have commitments for up to $6 million in project funding.

此外，我們精心投資了一系列重要的專利資產，這些資產為我們的AuthentiGuard產品提供了支持，從而成功地將我們的大部分智慧財產權與DSS的現有營運聯繫起來。值得注意的是，為了進行策略性智慧財產權投資以發展我們的技術團隊，我們已獲得外部資金。迄今為止，我們已獲得高達600萬美元的專案資金承諾。

In addition to strengthening our balance sheet in the first quarter, we made progress in multiple areas, including consolidating printing and packaging, adding an AuthentiGuard customer, and investing in new IP. We continue to focus on growing our Company and look forward to seeing the rewards our efforts as we move forward.

第一季度，除了鞏固資產負債表外，我們在多個領域也取得了進展，包括整合印刷和包裝業務、新增AuthentiGuard客戶以及投資新的智慧財產權。我們將繼續專注於公司發展，並期待在未來的工作中看到努力的回報。

With that, I'd like to open the call for questions. Operator?

接下來，我想開始接受提問。接線生？

(Operator Instructions). James McIlree, Chardan Capital.

（操作說明）。詹姆斯·麥克伊爾裡，查丹資本。

You mentioned in your remarks a couple of times about an outside investment, and I'm wondering if that investment applies to the entire IP portfolio or just some subsegments of it.

您在發言中幾次提到外部投資，我想知道這項投資是適用於整個智慧財產權組合，還是僅適用於其中的某些子部分。

Sure. Thanks, James. That's a good question because I've had this asked of me several times. When we get an investment, it's typically just geared toward that specific set of patents that are used to get the outside funding. So the funding that we received this year, the $3 million, is only based on the proceeds based from those nine patents we acquired from Cypress Semiconductor. They do not have anything to carry over into any of the other portfolios.

當然。謝謝，詹姆斯。這是一個很好的問題，因為之前也有人問過我好幾次了。我們所獲得的投資通常都只針對我們用來吸引外部資金的特定專利。所以，我們今年收到的300萬美元資金，只是基於我們從賽普拉斯半導體收購的那九項專利的收益。這些專利的收益不會轉移到我們其他的專利組合。

And does it have any contingent obligation from the investor to help fund potential litigation or the costs of IP monetization for those nine patents?

投資者是否有任何或有義務幫助支付潛在的訴訟費用或這九項專利的智慧財產權貨幣化費用？

Yes, that's what the funding was for, is to acquire and to assert. And for that, they receive a certain piece of the proceeds from those specific patents.

是的，這筆資金的用途就是為了收購和主張專利權。為此，他們會從這些特定專利的收益中獲得一定比例的分成。

Well, let me ask it differently, then. Is there any other obligation that the investor has in addition to the $3 million that's already been received?

那我換個方式問。除了已經收到的300萬美元之外，投資人還有其他義務嗎？

Yes, we have another $1.5 million to be received.

是的，我們還有150萬美元要收到。

Okay, great. And then just one other thing, if I might. Going forward, the SG&A expense is set to be about this $3 million? Or is it higher or lower it going forward?

好的，太好了。如果可以的話，我還想問最後一個問題。未來的銷售、管理及行政費用預計在300萬美元左右嗎？還是會更高或更低？

Phil?

菲爾？

Yes, if you look at our SG&A for the fourth quarter of 2013, which is a more comparable period because it includes post-merger operations, you'll note that our SG&A was fairly consistent, with the variability most likely in the professional fees area, depending on different stages of various assertion activities. So you will note that we've actually had a decline in our SG&A compensation from the fourth quarter, so those numbers are stabilizing.

是的，如果您查看我們2013年第四季度的銷售、管理及行政費用（SG&A），由於該季度包含了合併後的運營，因此更具可比性。您會注意到，我們的SG&A費用相當穩定，波動主要可能來自專業服務費領域，具體取決於各項申報活動的不同階段。因此，您會注意到，自第四季度以來，我們的SG&A費用實際上有所下降，這些數字正在趨於穩定。

Okay, great. Thank you.

好的，太好了。謝謝。

Jeff, are there any questions from the webcast?

傑夫，大家對網路直播有什麼疑問嗎？

I don't see any further questions through the webcast.

我沒有看到透過網路直播提出的其他問題。

(Operator Instructions). Okay, there are no other further questions at this time, if you'd like to do your closing remarks.

（操作說明）好的，目前沒有其他問題了，如果您想做總結發言，可以開始了。

I would just like to thank everybody for being on today's call and your interest in Document Security Systems, and we wish everybody a good day. Take care. Thank you.

我謹代表會議發言，感謝各位參加今天的電話會議，也感謝大家對文件安全系統的關注。祝大家今天一切順利，保重。謝謝。

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

謝謝。今天的電話會議到此結束。您可以掛斷電話了。感謝您的參與。