dss - investor presentation
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October 2014TRANSCRIPT
NYSE MKT: DSS
Company Presentation October 2014
IP DRIVEN INNOVATION
NYSE MKT: DSS
Important Cautions Regarding Forward-Looking Statements
2
Forward-looking statements that may be contained in this presentation, 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, 2013, filed with the Securities and Exchange Commission on March 26, 2014.
Forward-looking statements that may be contained in this presentation 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.
NYSE MKT: DSS
Key Stats (NYSE MKT: DSS)
Stock Price (10/1/14) $0.81
52 Week Low-High $0.77-$2.46
Avg. Daily Vol. (3 mo.) 187,589
Shares Outstanding 42.2M
Float (est.) 39.9M
Insider Holdings 6%
Institutional Holdings 13%
Market Cap $34.2M
Enterprise Value $40.0M
Date Founded 1984
Employee Count 108
Total Revenue (ttm) $17.9M
Net Income (ttm) $0.3M
EPS (ttm) $0.01
P/S (ttm) 2.7x
Cash (mrq) $1.3M
Total Assets (mrq) $66.3M
Total Debt (mrq) $7.1M
Data sources: Yahoo! Finance, S&P Capital IQ, company estimates Figures in USD unless otherwise noted; (ttm) = trailing twelve months as of Jun. 30, 2014; (mrq) = most recent quarter as of Jun. 30, 2014
Revenue Growth
12.0
15.3 15.5 15.9
1.4
1.8 2.0 2.0
$13.4
$17.1 $17.5 $17.9
2011 2012 2013 TTM
$ millions
Tech Sales & Licensing Revenue
Printed Product Revenue
3
NYSE MKT: DSS
What We Do
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We acquire, develop, produce and license innovative technologies founded on strong intellectual property
Broad IP portfolio protected by >120 U.S. patents
Currently focused on three verticals:
Brand Protection (our core technology area)
Software & Internet
Hardware & Peripherals
Our technology is trusted and relied upon by major corporations, governments & financial institutions
Unique product-based business model provides operating leverage to develop new products, while earning IP license fees & pursuing patent enforcement
TECHNOLOGY MANAGEMENT
NYSE MKT: DSS
IP Licensing Opportunity
5
Global IP licensing market has exploded in the last 20 years — expected to reach $500 billion2 by 2015
2.5% of U.S. GDP on R&D spend generates $120 billion1 of IP royalties and licenses
1) Bureau of Economic Analysis 2) Ernst & Young; Athreye and Cantwell, 2005; The Economist, World Intellectual Property Organization. Includes patents, copyrights, trademarks and other IP forms.
$3B $27B
$110B
$180B
$240B
$500B
1970 1990 2000 2009 2011 2015E
Global Intellectual Property Licensing Market Annual IP Licensing Revenue2
NYSE MKT: DSS
Unique Business Model
Vertically Integrated
R&D & Licensing
Single Portfolio
Enforcement
Non-Practicing
Entity (NPE)
Buying Group
Active R&D
Product Manufacturing
IP Licensing
IP Enforcement
IP Buying Group
Our business model provides stable revenues, rich tech innovation & IP monetization opportunities
Incubation of new IP-backed technologies leads to both sales and licensing
DSS approach captures the full commercial opportunity to “monetize” a patented technology
Operating companies have a 10% higher overall litigation success rate than NPEs1
6 1) PWC “ 2013 Patent Litigation Study”
NYSE MKT: DSS
How We Approach the Market — The DSS Process
Commercialization
Deliver incubated and value-added products & service to commercial footprint
Selectively expand into new markets
License & enforce IP/patents where partnership is favorable or our commercialization is blocked by competitors
7
Acquisition
Acquire IP through assignment, exclusive license or minority investments in partner companies
Pipeline is sourced primarily through referrals
Follow the “technology roadmap” of our business lines to identify IP with significant commercial & licensing potential
Highly selective: acquired <1% of IP portfolios evaluated
Incubation
Fund R&D in-house or through partnerships to create new products & services that are protected by our IP
Patent new innovations derived from R&D
Release completed innovations to business lines
Licensing & Enforcement
NYSE MKT: DSS
Our Competitive Advantages
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Highly experienced managers with successful monetization track records and operating experience
Our IP expertise is founded in the continuity with the inventor and others in the companies we’ve acquired
Access to specialized private project funding capital that increases IP investment capacity
Access to IP deal-flow
NYSE MKT: DSS
IP Activity
Products
Overview
Product Comps
We Commercialize & License Our Patented Technologies Across 3 Verticals
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❷ Software & Internet ❸ Hardware & Peripherals
DSS has developed a range of proprietary print & digital authentication technologies
Secure and protect products, documents, and data from diversion, counterfeit & fraud
Applications range from ID badges and tickets to packaging and labels for pharmaceuticals & consumer goods to securing websites
Trusted by major corporations, governments & financial institutions
For more information: www.dsssecure.com/security-technologies
❶ Brand Protection
Counterfeiting is a Global Epidemic…
• 10% of Global GNP is counterfeit goods
1
• $1 trillion losses globally ($250B in U.S.)2
• $142B anti-counterfeit packaging market
3
1) U.S. Chamber of Commerce 2) GCCCP – United Nations World IP Organization 3) Allied Market Research, March 2014
NYSE MKT: DSS
IP Activity
Products
Overview
Product Comps
We Commercialize & License Our Patented Technologies Across 3 Verticals
10
❶ Brand Protection ❷ Software & Internet ❸ Hardware & Peripherals
AuthentiGuard®: Authenticates packaging and printed material through a mobile application
Target market: Brand name goods & pharmaceuticals frequently counterfeited
AuthentiSite: Verifies authenticity of websites
Target markets: Online retail & wholesalers
Security-enhanced packaging, printing & plastics
Secure packaging solutions for brand protection
Intelligent cards that authenticate identity & resist counterfeiting
Printing services that leverage DSS’ fraud protection technology
For more information: www.authentiguard.com
NYSE MKT: DSS
IP Activity
Products
Overview
Product Comps
We Commercialize & License Our Patented Technologies Across 3 Verticals
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❶ Brand Protection ❷ Software & Internet ❸ Hardware & Peripherals
Multiple OS Platforms
Website Authentication
Real-Time Data Capture
GPS Mapping of Mark Scans
NYSE MKT: DSS
IP Activity
Products
Overview
Product Comps
We Commercialize & License Our Patented Technologies Across 3 Verticals
12
❶ Brand Protection ❷ Software & Internet ❸ Hardware & Peripherals
DSS IP Portfolio Segment
Issued Patents / Applications
Technology Milestones Current
Defendants/ Licensees
“Core” Physical and Digital Brand Protection technologies
13 / 14
Digital and physical anti-counterfeit and authentication technology
5 digital applications filed in 2012-2013
Patents should issue 2015-2016
Numerous Commercial Licenses, i.e., RR Donnelly
“Core” Printed Brand Protection technologies
Breach of Contract
Unauthorized use of trade secrets provided under NDA for protecting coupons
Filed 10/24/2011
Summary judgment motion decision pending
Trial TBD
Coupons.com
NYSE MKT: DSS
Products
Overview
IP Activity
We Commercialize & License Our Patented Technologies Across 3 Verticals
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❷ Software/Internet ❸ Hardware/Peripherals
Software & Internet vertical includes several pioneering companies and technologies founded by innovators that guide our corporate R&D
Our proprietary products and services include secure file sharing, middleware, and cloud hosting
❶ Brand Protection
NYSE MKT: DSS
Products
Overview
IP Activity
We Commercialize & License Our Patented Technologies Across 3 Verticals
14
❷ Software/Internet ❸ Hardware/Peripherals ❶ Brand Protection
Secure enterprise file sharing
Enterprise application configuration without coding
Platform independent website development
Out-of-the-box cloud application hosting
Resellers & Development Partners
NYSE MKT: DSS
Products
Overview
IP Activity
We Commercialize & License Our Patented Technologies Across 3 Verticals
15
❷ Software/Internet ❸ Hardware/Peripherals ❶ Brand Protection
DSS IP Portfolio Segment
Patents / Applications
Technology Milestones Current Defendants/
Licensees
7 / 5
Data structure used to build social networks and use thereof
Cases filed: 10/4/2012
Two settlements at 4% & 5% royalty rates
CAND case resumed 8/22 after 7 month stay
5 / 5
User configurable platforms used to create sophisticated and integrated applications
VirtualAgility is evaluating its options on how to proceed with future monetization of the portfolio
None
2 / 1
The development of custom applications & websites
Entered into sales and IP licensing partnership Nov. 2013
Ongoing licensing discussions
DSS is a Minority Shareholder
A Wholly-Owned Subsidiary of DSS
NYSE MKT: DSS
Products
Overview
IP Activity
We Commercialize & License Our Patented Technologies Across 3 Verticals
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❷ Software/Internet ❸ Hardware/Peripherals
Our newest technology vertical
Includes semiconductor and wireless technologies acquired principally from fortune 500 Companies
These technologies to help protect our hardware products, and develop new hardware and peripherals
❶ Brand Protection
NYSE MKT: DSS
Products
Overview
IP Activity
We Commercialize & License Our Patented Technologies Across 3 Verticals
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❷ Software/Internet ❸ Hardware/Peripherals
SensorShield: Cloud based facilities monitoring technology using multifunction sensors
CloudZone Gateway: Out-of-the-box computing server that allows SMBs to manage, share & protect data
AuthentiGuard Reader: Mobile reader that provides product authentication, management and communication, directly to the palm of your hand
❶ Brand Protection
Research & Development
NYSE MKT: DSS
Products
Overview
IP Activity
We Commercialize & License Our Patented Technologies Across 3 Verticals
18
❷ Software/Internet ❸ Hardware/Peripherals ❶ Brand Protection
DSS IP Portfolio Segment
Patents / Applications
Technology Milestones Current Defendants/
Licensees
2 / 0
Use of wireless peripheral devices in “Personal Data Network”
Case filed 11/26/2013 in EDTX
Markman Hearing 11/6/2014 in EDTX
9 / 0
Semiconductor Fabrication
Acquired in Q3-13
Cases filed 3/10/2014 in EDTX
Markman Hearing 3/2/2015 in EDTX
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Semiconductor Manufacturing
Acquired in Q2-14
NYSE MKT: DSS
Phase 5 Phase 1 Phase 4 Phase 3 Phase 2
Patent Litigation: Typical Milestones & Where We Stand
Complaint filed by patent owner in U.S. district court
Defendant answers complaint, asserts any counterclaims
End of any phase often leads to settlement discussions (95% of all cases lead to settlement before trial)
Plaintiff serves complaint & summons on defendant
Plaintiff replies to any counterclaims
Rule 26(f) Discovery
Conference
Case Management Conference w/ Judge
Jury Trial
Verdict
Pretrial Briefing
Pre-trial Conference w/ Judge
Expert Discovery Each party’s experts submit expert reports, expert depositions
Fact Discovery Depositions, document requests, interrogatories, requests for admission, subpoenas of third parties
The Markman Hearing An important of pretrial events
where the court determines the meaning of key words in the
patent claims. Interpretation of patent claims ultimately define the scope of infringement and
potential damages.
Motions for Summary Judgment
Initial decision on infringement & patent validity.
Appeal Plaintiff or defendant can appeal at federal circuit Court of Appeals
1. Coupons.com: Summary Judgment motion decision pending.
2. Bascom Research: Summary Judgment hearing scheduled for Nov. 21, 2014.
3. Apple: Markman Hearing scheduled for Nov. 6, 2014.
4. TSMC, Samsung Electronics and NEC Corporation: Discovery Phase initiated. Markman Hearing scheduled March 2, 2015.
5. Lenovo: Initial mediation scheduled Jan. 19, 2015. Markman hearing scheduled in May 2015. Trial anticipated Feb. 2016.
Status of DSS Patent Litigation
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NYSE MKT: DSS
Growing IP Portfolio & Increasing Monetization Activity
20
15
35
150
4
10
15
2012 2013 2014E 2015E
Issued Patents
Active Disputes
IP Portfolio Growth & Outlook
Brand Protection
9% Issued: 13
Pending: 14
Software & Internet
17% Issued: 14
Pending: 11
Hardware & Peripherals
74% Issued: 110 Pending: 0
Patent Asset Composition Issued & Pending
We have focused our IP acquisitions on hardware patents that align with our technology roadmaps.
These IP assets support our operating divisions, product innovations and licensing programs.
We anticipate additional IP acquisitions to diversify our portfolio as we take advantage of this unprecedented buyer’s market for IP assets.
NYSE MKT: DSS
Improving Net Profitability of Sales (Sales less direct costs, excl. depreciation & amortization)
$4.5
$6.1
$7.0 $6.8
2011 2012 2013 TTM
Revenue Growth
Financial Performance
$12.0
$15.3 $15.5 $15.9
$1.4
$1.8 $2.0 $2.0
$13.4
$17.1 $17.5 $17.9
2011 2012 2013 TTM
$ millions
Tech Sales & Licensing Revenue
Printed Product Revenue
$ millions
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NYSE MKT: DSS
Balance Sheet
Access to private project funding capital from IP-savvy investors, increases DSS’ IP investment capacity.
Received $1.5 million milestone payment in Q3 2014.
$1 million available under a revolving credit line.
Select Balance Sheet Items
$Millions June 30, 2014
Cash & restricted cash $1.6
Total assets $66.3
Total debt $7.1
Total liabilities $11.7
Total stockholders’ equity $54.6
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NYSE MKT: DSS
Growth Drivers
Brand Protection
Continued transition to higher margin products in print and ID
Remain EBITDA positive in packaging and printing business groups
Ramp commercialization of AuthentiGuard
Licensing Revenue
Accelerate monetization of existing patents
Assert additional patents against identified targets
Intellectual Property
Create new IP in key technology verticals
Acquire foundational IP that aligns with our tech road map
Innovation
Continued development of technology and products in our core verticals
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NYSE MKT: DSS
Key Takeaways
Differentiated business model — focused on commercialization and enforcement of a diversified technology portfolio
Growing and profitable brand protection business
Valuable near-term growth opportunities with AuthentiGuard & other digital products
Significant upside potential with IP licensing
Catalysts in 2014 include potential product successes and litigation milestones
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Revenue Growth
$12.0
$15.3 $15.5 $15.9
$1.4
$1.8 $2.0 $2.0
$13.4
$17.1 $17.5 $17.9
2011 2012 2013 TTM
$ millions
Tech Sales & Licensing Revenue
Printed Product Revenue
NYSE MKT: DSS
Contact Us
DSS Investor Relations Tel (585) 325-3610 [email protected]
Liolios Group, Inc. Investor Relations Matt Glover or Michael Koehler Newport Beach, CA 92660 Tel (949) 574-3860 [email protected]
Document Security Systems, Inc. 28 Main Street East, 15th Floor Rochester, NY 14614 www.dsssecure.com
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NYSE MKT: DSS
2013-2014 Timeline & Milestones
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Jul: Merged with Lexington
Technology Group
Oct: Partnered with National Association of Drug Diversion Investigators
Sept: First AuthentiGuard
sale to MedTech
Oct: Launched Hardware & Peripheral
Vertical
Nov: Partnered with Condé Nast
Publication, Brides Magazine
Nov: Entered into sales & IP licensing
partnership with Express Mobile
Nov: Filed patent lawsuit against Apple
Dec: Printed Products EBITDA
profitability increased 386%
Feb: AuthentiGuard
on Fox & Friends
Jan: Completed
consolidation of print & packaging divisions
Mar: Filed patent infringement claim against
Samsung TSMC & NEC
Q3: Acquired wireless &
semiconductor portfolios
Q2: Acquired hardware portfolios
Mar: Closed $4.5M project
Financing
2013 | 2014
Q2 Revenue Up 14% $4.9M
NYSE MKT: DSS
Proven Leadership in IP Monetization & Commercialization
Executive Team Expertise
Brand Protection Software/Internet Tech Management
Jeff Ronaldi CEO
Peter Hardigan COO
Robert Bzdick President
Phillip Jones CFO
Dave Wicker VP of R&D
Tom Bascom Bascom Research
Warren Hurwitz Director
25+ years of experience in company formation and management
Former CEO of Lexington Technology Group
Leader in IP enforcement with verdicts against Microsoft, Genzyme and Citrix
Extensive IP experience as CFO & Head of Investment Management at IP Navigation
Previously COO of Lexington Technology Group
Principal & leader of IP transactions at Charles River Associates in NYC and Frankfurt
25+ years of successful entrepreneurial experience
Founder and CEO of Premier Packaging Corp. prior to DSS acquisition
Leads Brand Protection vertical
CFO DSS since 2009
Controller and Principal Accounting Officer from 2005-2009
Financial management positions at American Fiber Systems and Zapata
PWC and Arthur Andersen
24+ years of experience in the commercial printing industry
Developed techniques to provide user-friendly secure technologies
Implemented through on-site technical training for web press operators around the country
Founder of Linkspace
Program Manager for Raytheon & Northrup Grumman’s ballistic missile defense program
Manager for NASA’s Mission to Planet Earth at Goddard Space Flight Center
Co-founded Altitude Capital Partners
Managed Altitude’s key investment portfolio companies: Visto, Saxon, DeepNines, MercExchange, Digitude and Software Rights Archive.
SVP at HSBC Capital (USA), U.S. Private Equity arm of HSBC Group
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