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Wave Q3 Revenues Rise over 150% to $846,000 Driven by Sequential and Year-over-Year Growth in License Revenue

Lee, MA — November 9, 2006 — Wave Systems Corp. (NASDAQ: WAVX — today reported results for the third quarter (Q3) and nine months ended September 30, 2006 and reviewed recent corporate progress and developments.

Principally reflecting a 155% increase in license revenues in Q3 2006 versus last year, Wave’s Q3 2006 net revenues rose over 150% to $846,000, compared to Q3 2005 net revenues of $335,000. The increase in license revenues was principally due to royalties earned from increased shipments of Wave software by Wave’s OEM partners. Wave’s services revenues were $19,000 in Q3 2006, an increase over services revenue of $11,000 in the year ago period. Wave’s Q3 2006 services revenue reflects a more normalized level than during Q1 and Q2 2006 (with services revenues of $185,000 and $228,000 respectively), during which periods Wave was completing a service contract for the U.S. Government.

Gross profit rose to $643,000, or 76% of net revenues, in Q3 2006, versus gross profit of $150,000, or 45% of net revenues, in Q3 2005, and gross profit of $554,000, or 61% of net revenues, in Q2 2006. The increase in gross profit is a function of the increase in higher-margin licensing revenues. For Q3 2006 Wave reported a net loss of $4.5 million, or $0.12 per basic share, including non-cash, share-based compensation expense of $381,000, or $0.01 per basic share, recorded in accordance with the implementation of SFAS 123(R) for “Share-based Payment,” effective January 1, 2006. Wave’s Q3 2005 net loss of $4.4 million, or $0.15 per basic share, did not include any share-based compensation expense. Per share figures are based on a weighted average number of basic shares outstanding in the third quarters of 2006 and 2005 of 37,800,000 and 28,367,000, respectively. Wave’s shares outstanding and loss per share figures have been adjusted to reflect the Company’s 1-for-3 reverse stock split that went into effect on July 26, 2006.

For the first nine months of 2006, Wave’s net revenues rose by 235% to $2.2 million, compared to net revenues of $671,000 in the year-ago nine-month period. For the first nine months of 2006 Wave reported a net loss of $14.0 million, or $0.40 per basic share, including non-cash, share-based compensation expense of $1,142,000, or $0.03 per basic share. Wave’s net loss of $13.1million, or $0.48 per basic share, in the first nine months of 2005 did not include any share based compensation expense. The weighted average number of basic shares outstanding in the first nine months of 2006 and 2005 were 35,279,000 and 27,058,000, respectively. Both the basic loss per share and weighted average number of basic shares outstanding in the 2006 and 2005 nine-month periods have been retroactively adjusted to reflect the impact of the 1-for-3 reverse split.

As of September 30, 2006 Wave had total current assets of $4 million and no long-term debt. On October 30, 2006, Wave completed the sale of approximately 3.5 million shares of common stock at a price of $2.73 per share, yielding net proceeds of $9.1 million to be used to fund Wave’s operations into 2007.

Steven Sprague, Wave’s president and CEO, commented, “Wave continued to make solid financial and corporate progress during the third quarter and year-to-date periods, highlighted by a sequential increase in license revenues from our OEM partners as well as the initiation of modest upgrade revenue as enterprises begin to beta test and implement our full EMBASSY® Trust Suite (ETS) version 5.1 as well as the related server infrastructure.

“We believe momentum is gaining for the trusted computing standard, as reflected in accelerating Trusted Platform Module (TPM) chip shipments across all PC OEMs; the adoption of the TPM as a required feature in PC procurements and the coming launch of the new Vista operating system which requires a TPM as part of its logo compliance for business PCs. In our view, the dialogue regarding trusted computing is gaining in volume within industry, enterprise customer and media circles. We are very focused on supporting PC OEM and distribution partners in converting prospects into EMBASSY Trust Suite customers. We continue to be very active in communicating the Trusted Computing and Wave value propositions before industry and investment community audiences at a variety of conferences and conventions in the U.S. and abroad.

“We have also seen increased interest by enterprise customers in upgrading their infrastructure to take full advantage of the Wave products and have recorded initial revenue from a modest number of initial enterprise license upgrades. These customers and opportunities are across the spectrum of business in Europe, Asia and North America.”

Summary of recent progress/developments:
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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 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.
Wave Investor Relations Contact
David Collins, Ratula Roy
Catalyst Global LLC

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