DSS, Inc. (NYSE:DSS) is a multinational company operating across diverse market sectors, strategically acquiring and developing assets to create shareholder value. With a history spanning over four decades, DSS has evolved into a diversified conglomerate with nine distinct business lines, each at various stages of development and growth.
Established in 1984 as Document Security Systems, Inc., the company underwent a name change to DSS, Inc. in 2021, reflecting its broader focus beyond its original document security printing operations. This change became effective on September 30, 2021, though the company maintained the same trading symbol DSS. Today, the company's nine business segments include Product Packaging, Biotechnology, Direct Marketing, Commercial Lending, Securities and Investment Management, Alternative Trading, Digital Transformation (discontinued in 2023), Secure Living (discontinued in 2023), and Alternative Energy (discontinued in 2023).
Business Segments
Product Packaging
The Product Packaging division, led by Premier Packaging Corporation, operates in the paperboard folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves, and complex 3D direct mail solutions, primarily serving the U.S. market. Premier Packaging serves clients in various industries, including pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging, and direct marketing. The division also produces a wide array of printed materials, such as security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons, and parts tracking forms. Additionally, it provides resources and production equipment for the company's ongoing research and development of security printing, brand protection, consumer engagement, and related technologies.
Biotechnology
The Biotechnology segment, anchored by Impact BioMedical, Inc., targets unmet medical needs and drives mission-oriented research, development, and commercialization of solutions for neurological, oncological, and immune-related diseases. This division leverages strategic partnerships to advance drug discovery and develop breakthrough alternatives in areas like diabetes treatment and functional fragrances. Impact BioMedical's business model revolves around two key methodologies: Licensing and Sales Distribution. The company develops valuable and unique patented technologies, which it licenses to pharmaceutical companies, large consumer packaged goods companies, and venture capitalists in exchange for usage licensing and royalties. Additionally, Impact BioMedical utilizes the company's ecosystem to leverage its sister companies' global distribution networks for the sales generation of its nutraceutical and health-related products through branded and private-label offerings.
Direct Marketing
DSS's Direct Marketing division, led by Decentralized Sharing Systems, Inc., provides services to assist companies in the emerging "gig" business model of peer-to-peer decentralized sharing marketplaces. Its product offerings include nutritional and personal care items sold across North America, Asia Pacific, the Middle East, and Eastern Europe. In 2020, DSS acquired a 50% stake in Sharing Services Global Corporation (SHRG) through a private placement, increasing its ownership to approximately 58% in early 2022. SHRG, which represented a significant portion of DSS's Direct Marketing segment, was later deconsolidated from DSS's financial statements in May 2023 when DSS distributed approximately 280 million SHRG shares to its own shareholders.
Commercial Lending
The Commercial Lending segment, driven by American Pacific Financial, Inc. (APF), is organized as a financial network holding company. APF focuses on acquiring equity positions in undervalued commercial banks, bank holding companies, and non-banking licensed financial companies, as well as engaging in non-banking activities closely related to banking, such as loan syndication, mortgage banking, and SPAC consulting. It also targets companies operating in the United States, Southeast Asia, Taiwan, Japan, and South Korea. From this financial platform, the company aims to provide an integrated suite of financial services for businesses, including commercial business lines of credit, land development financing, inventory financing, third-party loan servicing, and services addressing the financial needs of the "Gig Economy."
Securities and Investment Management
The Securities and Investment Management division was established to develop and/or acquire assets in the securities trading or management arena. This segment includes the company's real estate investment trust (REIT), AMRE, which acquires and leases medical real estate properties to single operators under triple-net leases. The REIT fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses.
Additionally, this segment includes Sentinel Brokers Company, Inc., which primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds, as well as preferred stock, and accelerating the trajectory of the company's digital securities business. The segment also encompasses DSS AmericaFirst, a suite of mutual funds managed by DSS Wealth Management, which the company expects to expand into numerous investment platforms, including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds.
Alternative Trading
The Alternative Trading segment was created to develop and/or acquire assets and investments in the securities trading and/or funds management arena. In partnership with global leaders in alternative trading systems, this division intends to own and operate digital asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrencies.
While the Digital Transformation, Secure Living, and Alternative Energy divisions were discontinued in 2023, the remaining six operating segments continue to evolve and diversify DSS's revenue streams.
Financials
In terms of financial performance, DSS reported annual revenue of $25.93 million, an operating loss of $23.59 million, and a net loss of $60.63 million for the fiscal year ended December 31, 2023. The company's balance sheet as of the same date showed total assets of $153.19 million and total liabilities of $69.98 million, with a cash position of $6.62 million.
The 2023 financial results were impacted by several one-time charges, including a $6.22 million impairment of assets due to the deconsolidation of the company's Direct Marketing segment, as well as significant impairment charges related to the company's commercial lending and biotechnology assets. Excluding these unusual items, the company's normalized EBITDA for 2023 was negative $16.60 million.
For the nine months ended September 30, 2024, DSS reported total revenue of $13.68 million, an operating loss of $14.29 million, and a net loss of $15.76 million. The company's cash position as of that date was $11.63 million.
The company's financial performance has been mixed across its various segments. For the three months ended September 30, 2024, the Product Packaging segment reported a 46% increase in printed products revenue compared to the prior-year period, driven by new customer orders. However, the Commercial Lending segment experienced a decline in net investment income of 58% for the three-month period, as a number of loans went into non-accrual status due to borrowers' struggles to make expected payments.
For the nine-month period ended September 30, 2024, the company's total revenue decreased by 28% compared to the same period in the prior year. This was primarily attributable to a 12% decline in printed products revenue, a 61% decrease in rental income, and a 57% drop in net investment income. The company's Direct Marketing segment also saw a 100% decline in revenue, as the transition from maintaining its own sales force to licensing its products has been slow to generate new revenue.
The most recent quarter (Q3 2024) showed some improvement, with revenue of $5.60 million, representing a 34% increase compared to Q3 2023. This growth was primarily driven by the 46% increase in Printed Products revenue. Rental income also increased by 110% due to new tenants at the AMRE LifeCare facility. However, the company still reported a net loss of $5.28 million for the quarter.
Liquidity
As of September 30, 2024, DSS reported cash and cash equivalents of $11.63 million. The company's debt-to-equity ratio stood at 0.90, while its current ratio was 1.16 and its quick ratio was 1.11. These liquidity metrics suggest that the company has a reasonable short-term financial position, although it may face challenges in meeting its long-term obligations if it continues to experience operating losses.
Challenges and Opportunities
DSS has faced several challenges in recent years, including the discontinuation of its Digital Transformation, Secure Living, and Alternative Energy divisions, as well as significant impairment charges and losses in its commercial lending and biotechnology segments. The company has also experienced operating losses and negative cash flows from operating and investing activities over the past several years. Additionally, DSS has had to deal with credit weaknesses and repayment issues with some of its loan borrowers, resulting in the need to record significant loan loss reserves.
The company's management team has been actively working to streamline operations, divest non-core assets, and focus on its most promising business lines to drive future growth and profitability. DSS has taken steps to improve its financial position, including selling real estate holdings, reducing expenses and cash burn across its business lines, and pursuing the initial public offering of its Impact BioMedical subsidiary in 2024. The company believes these actions will allow it to fund its current and planned operations for the next twelve months.
Recent Developments
In September 2024, DSS celebrated a major milestone with the successful initial public offering of its Impact BioMedical subsidiary on the NYSE American exchange. This event not only highlighted the value of DSS's biotechnology investments but also provided an infusion of capital to support Impact BioMedical's continued innovation and expansion.
Future Outlook
Looking ahead, DSS is focused on capitalizing on the growth opportunities within its remaining core business segments, including Product Packaging, Biotechnology, Direct Marketing, Commercial Lending, Securities and Investment Management, and Alternative Trading. The company's management team is actively pursuing strategic initiatives to optimize its portfolio, streamline operations, and position DSS for long-term sustainable growth.
Conclusion
Given the company's diversified business model, exposure to various market sectors, and ongoing transformation efforts, DSS presents both opportunities and risks for investors. While the company has faced significant challenges in recent years, its management team's commitment to innovation and value creation suggests that DSS may have the potential to emerge as a more focused and profitable enterprise in the coming years. However, investors should carefully consider the company's financial performance, ongoing operational challenges, and the competitive landscape in each of its business segments before making investment decisions.