DSS: Revenue Growth is Driven By Market Share Gains in Packaging

By Lisa Thompson

NYSE:DSS

READ THE FULL DSS RESEARCH REPORT

Though all the buying and selling of businesses and investing in new ones, the Premier Packaging piece of DSS DSS continues to perform like a champ. During shutdowns and supply chain issues, it was able to pick up market share and deliver product and it grew 21.4% Q1 2021. It is operating near full capacity, constrained by specific bottlenecks in different product lines. Bursting at the seams, it has a move planned for December into a larger facility that will receive a new Heidelberg press, be better laid out to support current orders, and configured for more continuous operations, reducing costs. This will allow it to take on much more work in 2022 and give it the ability turn out fancier packaging targeted to the direct sales market that needs a better looking package going to the consumer. This will enable the production of higher margin products that can also be used for the company's direct marketing business.

Q1 2021 Earnings Results

Total revenues for the quarter were $4.9 million versus a restated $4.2 million a year ago, up 17.1%. Printed product sales were $3.8 million versus a restated $3.2 million in Q1 2020, up 21.4%. Technology sales, services, and licensing grew 2.1% to $480,000. The soon to be sold AuthentiGuard business was $367,000 of that, up 10.9%. On May 7, 2021 Proof Authentication Corporation signed a purchase agreement to acquire it for $5 million. In the future, Proof will be paying DSS a licensing fee for any new business Proof brings in and DSS will also refer new customers to them generating fees. We have reduced our revenue forecast for that business to reflect this arrangement noting that these lower revenues will now be at 100% gross margins. RBC Life Sciences reported revenues of $608,000 up from $573,000 a year ago, up 6.1%. It is expected to show sequential improvement throughout the year. DSS is investing heavily in rolling out new distribution in that business and hopes it will bare fruit later this year.

Gross margins were 32.2% down from last year's restated 37.4%, but up from Q4's 29.9% due to product mix; gross margin dollars were $1.6 million flat with last year despite the sales growth.

Operating expenses were $4.8 million down sequentially from $8.0 million in Q4 and compared to a restated $2.5 million in Q1 2020. The Q4 2020 quarter contained a bonus accrual of $4.3 million for the company's Chairman. The year over year increases were from adding the direct marketing business and Impact Biomedical, which added the R&D category.

Other expenses contained a one-time unrealized loss on marketable securities of $1.1 million and a gain from extinguishment of debt of $116,000. Its 48.8% of Sharing Services Global's net income produced a loss of $579,000. Minority interest was a reversal of $31,000 loss.

The loss from continuing operations was $3.9 million versus a $920,000 loss last year and discontinued operations lost $114,000 this quarter versus $1 million in Q1 2020.

Loss to common shareholders was $4.0 million versus a loss of $1.9 million last year. The GAAP loss per share was $0.20 versus a loss of $1.23 a year ago. Non-GAAP it was a loss per share of $0.15 versus a loss of $1.18 last year. The shares outstanding increased 1,163% to 19.4 million primary shares. Primary shares outstanding as of May 7, 2021 were 27,670,125.

Balance Sheet

On March 31, 2021 the company had $52.1 million in cash, working capital of $55.5 million and debt of $2.2 million. It also owns $10 million in marketable securities which includes 91.2 million shares of Sharing Services Global SHRG as well as 150 million warrants exercisable at $0.22 (valued at $20 million at $0.22 per share) and 127,179,311 shares of Alset International Limited 40 worth $5 million.

During the quarter ended, the company did two capital raises. On Jan. 19, 2021 DSS sold 7,666,666 shares at $3.60 per share for gross proceeds of approximately $27.6 million and on February 8, 2021, it sold another 14,167,247 shares at $2.80 p with gross proceeds of approximately $39.7 million.

In April 2021, DSS executed and funded the $30 million convertible promissory note to Sharing Global Services. The cash has also been reduced by $2.5 million from a draw down by Puradigm. With cash burn we expect it is now near $18 million.

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