Jody Janson - IR Jeffrey Ronaldi - CEO Philip Jones - CFO Robert Fagenson - Chairman

Good day everyone and welcome to today's Document Security Systems First Quarter 2017 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the program over to Mr. Jody Janson. Please go ahead, sir.

Good afternoon and I want to thank everyone for joining us today for the Document Security Systems' first quarter 2017 earnings conference call. I'm Jody Janson, Investor Relations for Document Security Systems. And joining me on today's call from DSS are CEO, Jeff Ronaldi; CFO, Phil Jones; and the Chairman of the Board, Robert Fagenson. Following our prepared remarks, we will open the call for questions. This afternoon Document Security Systems issued a press release announcing its first quarter 2017 financial results. Before we begin, I'll begin the Company's Safe Harbor statement. Forward-looking statements on this call, including without limitations, statements relating 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 contains 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 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, 2016, filed with the Securities and Exchange Commission. Forward-looking statements made as part of this call are being made as of today, May 15, 2017, 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 this non-GAAP financial measure and reconciliations of net loss to adjusted EBITDA. Now I'd like to turn the phone call over to Phil Jones, Chief Financial Officer of Document Security Systems. Phil?

Thank you, Jody. Today we announced our first quarter 2017 financial results which are summarized in the press release we published after market close today and details in the Form 10-Q filed with the SEC today as well. As highlighted in our earnings press release, the first quarter was a very strong quarter for DSS as demonstrated by revenue growth and a strong adjusted EBITDA profit. During the first quarter of 2017, the company generated adjusted EBITDA profit of $391,000 which was 8% of sales. For our Printed Products Group which produced $773,000 of adjusted EBITDA profit or nearly 18% of sales, the first quarter was a clear indication of the strength of that business and its continued success in benefiting from cushioned to higher value product areas. In addition our Technology Management Group saw significantly reduced losses as it benefits from reduced legal and professional fees along with increasingly significant AuthentiGuard sales. Consolidated revenue for the third quarter was $4,771,000 up 10% from the first quarter of 2016. During the quarter sales of packaging and printing services increased 11%. This was driven by increasing shipments to its largest customer and sales of plastics card products increased 10% which benefited from an increase in revenue from its event bad business. Technology sale, services and licensing revenue increased 1% as an increase in AuthentiGuard sales was offset by a decline in IT services and hardware sales as compared to the first quarter of 2016. While revenue increased 10%, cost of goods sold exclusive of depreciation increased only 7% which resulted in an increase in the net margin of these two items by 14%. This core margin improvement reflects the increasing impact of higher margin product sales increase and it’s the driver of the company's significantly improved first quarter results. Selling, general and administrative costs and expenses exclusive of depreciation and amortization declined 10% in the first quarter of 2017 primarily driven by decreases in professional fee costs which more than offset an increase in stock-based compensation costs. Other cost categories were generally flat except for marketing costs which increased as the company has increased its tradeshow attendance and added a marketing consultant. In the first quarter of 2017 the company posted a net loss of $184,000. Thus while adjusted EBITDA results were strongly in the positive, our net loss results are still impacted by noncash expenses of depreciation and amortization and stock-based compensation which was especially the case for the first quarter of this year but the impact of these items on our net results is expected to decrease for the remainder of 2017. In conclusion the first quarter was a very good quarter for the company based on several metrics we believe as a great way to begin 2017. With that, I'll now turn the call to our CEO Jeff Ronaldi.

Thank you, Phil. I would like to thank everyone again for joining us on the call today. Our continued momentum relating to first quarter 2017 revenue growth has been driven by a number of key factors and we're excited about the development taking place in each of our company's core and IP divisions. Our Printed Products Group continue to perform very well in the first quarter of 2017 but continued strength in its sales of packaging ID cards and security printing. With respect to our Digital Group performance we continue to build strong monthly revenue momentum with our AuthentiGuard technology and solutions and are working hard to open additional doors for the sale of our technologies through expansion, our marketing efforts in the U.S. and abroad. We continue to enhance our domestic sales staff and marketing efforts in the U.S. and have also recently established a business presence in Asia with the aim of capturing market share abroad as well. Our Plastic Division continues to perform consistently well producing positive EBITDA for the company and providing cutting edge RFIB and ID solutions for our customers. While I am extremely pleased with all the above progress relating to our core business, I'm particularly pleased with the progress we have made this year in connection with our intellectual property licensing and enforcement endeavors. As noted in the recent press release, the company has filed suit in the Federal District Court located in Eastern district of Texas against multiple defendants alleging infringement of a number of our LED patents. In addition an effort to bolster our licensing program relating to both our LED and Bluetooth patent portfolios, we have hired someone to assist the company with licensing of those patent portfolios. This person will be located at our offices in Plano, Texas. As a CEO I am committed to creating unique value proposition for our stakeholders through all the above described initiative and greatly appreciate your continued support and confidence. Once again thank you for your continued interest in DSS. Robert?

Thank you Jeff, and thank you all for being with us on the call and I want to thank our management team and all of our crew back in Rochester and around the country for putting in another good quarter. We have reached the point where sequentially we're showing this company as capable of holding its own, customize the cash and EBITDA numbers once again led that sale related pretty back to do the case. I know people feel ultimately the stock price of how the company does that usually has a lag involved, it takes some time for people to believe and want to see a bunch of quarters before they end up coming in and buying stock and are seeing the cumulative effect of that and I hope that will be the case. But once again this is a product of hard work, repositioning and a final acceptance by the market of the validity of our products which continues to unfold and continues to move forward. So I thank the team and I thank you all as our shareholders and now we'll open up the floor to questions. Operator?

In that case we appreciate everyone being on the call. Once again my thanks to all the team at Document Security Systems for turning in another excellent quarter. We will keep working diligently to make sure that this sequential event where we can have better and better things to talk about and that ultimately the success should be reflected in the marketplace. So once again thank you all and good evening.

This does conclude today's Document Security Systems first quarter 2017 earnings call. You may now disconnect your lines and everyone have a great day.