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Wave Q2 Net Revenues Rise to $910,000, Primarily Due to Initiation of Bundled Software Shipments by OEM Customers and Increased Services Activity

Net Revenues were $258,000 in Q2 2005 and $493,000 in Q1 2006 –

Lee, MA — August 3, 2006 — Wave Systems Corp. (NASDAQ: WAVX — www.wave.com) today reported results for the second quarter (Q2) and six months ended June 30, 2006 and reviewed recent corporate progress and other developments.

Wave’s Q2 2006 net revenues rose over 250% to $910,000, compared to Q2 2005 net revenues of $258,000 and an increase of 85% versus Q1 2006 net revenues of $493,000. The improvement in Q2 2006 net revenues reflected increases in both license and services revenues as compared to Q2 2005 and Q1 2006. The increase in license revenues was principally due to higher royalties earned from increased shipments of Wave software. Services revenue increased versus the year ago and Q1 2006 quarters primarily due to the substantial completion of a service contract for the U.S. government.

Gross profit rose to $554,000, or 61% of net revenues, in Q2 2006, versus gross profit of $81,000, or 31% of net revenues, in Q2 2005, and gross profit of $278,000, or 56% of net revenues, in Q1 2006. For Q2 2006 Wave reported a net loss of $4.5 million, or $0.13 per basic share, including non-cash, share-based compensation expense of $408,000, or $0.01 per basic share, which was recorded in accordance with the implementation of SFAS 123(R) for “Share-based Payment,” effective January 1, 2006. Wave’s Q2 2005 net loss of $4.2 million, or $0.15 per basic share, did not include any share-based compensation expense. Wave’s loss per share figures have been retroactively adjusted to reflect the Company’s 1-for-3 reverse stock split that went into effect on July 26, 2006. The weighted average number of basic shares outstanding in the second quarters of 2006 and 2005 were 35,416,000 and 27,042,000, respectively, also adjusted for the impact of the reverse split.

For the first six months of 2006, Wave’s net revenues rose to $1.4 million, compared to net revenues of $335,000 in the year-ago six month period. For the first six months of 2006 Wave reported a net loss of $9.5 million, or $0.28 per basic share, including non-cash, share-based compensation expense of $761,000, or $0.02 per basic share. Wave’s net loss of $8.7 million, or $0.33 per basic share, in the first six months of 2005 did not include any share based compensation expense. The weighted average number of basic shares outstanding in the first six months of 2006 and 2005 were 33,998,000 and 26,393,000, respectively. Both the basic loss per share and weighted average number of basic shares outstanding in the 2006 and 2005 six-month periods have been retroactively adjusted to reflect the impact of the 1-for-3 reverse split.

As of June 30, 2006 Wave had total current assets of $3.0 million and no long-term debt. Deferred revenue increased to $564,000 at June 30, 2006 compared to $440,000 at March 31, 2006 and $504,000 at year-end 2005.

Steven Sprague, Wave’s president and CEO, commented, “We are very pleased that our OEMs’ shipments have increased this quarter. We believe our strategy to partner with major manufacturers and OEMs is beginning to yield positive results, and we continue to make significant investments in our software and in the marketing of trusted computing solutions to support those relationships. It is our view that the integration of hardware security into the PC provides an excellent platform to address many of the security issues that have plagued PC users. As the industry discovers this new capability, we believe Wave should be well positioned to participate in resulting growth opportunities. As with many previous PC industry standards, we believe that there will be broad based adoption of Trusted Computing in the PC industry, and we look forward to helping the industry realize the full security benefit of this technology.

“Of course, there is significant work still to be done. Wave will continue to invest in our software solutions to support three core markets for trusted computing: Strong Authentication, Data Protection including Full disk encryption, and Network Access control. We believe that ongoing investments will continue to support our market share, our revenue and our intellectual property portfolio. Though it has been and continues to be a challenging road, this is an exciting time for Wave and its employees and shareholders.”

These forward looking statements are predicated on a variety of factors outside of Wave’s control, including the accuracy of preliminary forecasts by OEM partners, timing of OEM shipments, enterprise demand for trusted computing solutions, the success of OEM marketing efforts, engineering or support requirements of OEM partners, and other related factors.

Summary of recent progress/developments:
(for more details, please visit www.wave.com):

Wave Logo

About Wave Systems Corp.

Wave is a pioneer in hardware-based PC security that provides software to help solve critical enterprise PC security challenges such as data protection, strong authentication, network access control and the management of these enterprise functions.  Wave is a founding member of the Trusted Computing Group (TCG), a consortium of more than 100 companies that forged open standards for hardware security.  Wave’s EMBASSY® line of client- and server-side software leverages and manages the security functions of the TCG’s industry standard hardware security chip, the Trusted Platform Module (TPM) as well as hard drives that comply with TCG’s “Opal” self-encrypting drive (SED) standard.  Self-encrypting drives are a growing segment of the data protection market, offering increased security and better performance than most existing software-based encryption solutions.  TPMs are standard equipment on many enterprise-class PCs shipping today and have shipped on an estimated 300 million PCs worldwide.  Using TPMs and/or SEDs and Wave software, enterprises can substantially and cost-effectively strengthen their current security solutions.  Visit http://www.wave.com for more information.

Safe Harbor for Forward Looking Statements

Under the Private Securities Litigation Reform Act of 1995. This press release may contain forward-looking information within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), including all statements that are not statements of historical fact regarding the intent, belief or current expectations of the company, its directors or its officers with respect to, among other things: (i) the company’s financing plans; (ii) trends affecting the company’s financial condition or results of operations; (iii) the company’s growth strategy and operating strategy; and (iv) the declaration and payment of dividends. The words "may," "would," "will," "expect," "estimate," "anticipate," "believe," "intend" and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company’s ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors.

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For more information please contact:

Wave Contact:
Gerard T. Feeney, CFO
Wave Systems Corp.
413-243-1600
info@wave.com
Wave Investor Relations Contact
David Collins, Ratula Roy
Catalyst Global LLC
212-924-9800
wavx@catalyst-ir.com

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