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Wave Q2 Revenues Rose 142% to $4.8 Million and its Q2 Net Loss Declined to $344,000 from a Net Loss of $5.6 Million

Wave Achieves Positive Q2 ’09 EBITDAS of $144,000

Lee, MA — August 10, 2009 — Wave Systems Corp. (NASDAQ: WAVX — www.wave.com) today reported results for the second quarter (Q2) ended June 30, 2009 and reviewed recent corporate progress and developments.

Principally reflecting higher bundled software royalties, services revenue related to a U.S. government contract that was largely completed during the period and increased software upgrade sales, Wave’s Q2 2009 net revenues rose 142% to $4.8 million, compared with Q2 2008 net revenues of $2.0 million and Q1 2009 net revenues of $4.0 million. Total billings for Q2 2009 grew 107% to $4.6 million, compared to Q2 2008 total billings of $2.2 million (a reconciliation of total billings to total net revenues is included in the financial tables below).

As a result of ongoing overhead and cost management efforts, Q2 2009 selling, general and administrative expense declined 30.5% to $2.9 million as compared to $4.2 million in Q2 2008, and declined 12.7% versus the Q1 2009 level. Wave also reduced its research and development expenses by 42.7% to $1.8 million in Q2 2009 as compared to $3.1 million in Q2 2008 and in-line with the level in Q1 2009.

Wave’s Q2 2009 net loss declined to $0.3 million, or $0.01 per basic and diluted share, compared with a Q2 2008 net loss of $5.6 million, or $0.10 per basic and diluted share, and Wave’s Q1 2009 net loss of $1.5 million, or $0.02 per basic and diluted share. Per-share figures are based on a weighted average number of basic shares outstanding in the second quarters of 2009 and 2008 of 66.4 million and 53.9 million, respectively, and 61.9 million in the first quarter of 2009.

To highlight the company’s operational performance on a cash flow basis, for Q2 2009 Wave is reporting EBITDAS, a non-GAAP measure defined as earnings before interest income (expense), income taxes, depreciation and amortization and stock-based compensation expense. For Q2 2009 Wave had positive EBITDAS of approximately $144,000 as compared to negative EBITDAS of approximately $5.0 million in Q2 2008. The Q2 2009 performance represents Wave’s first-ever positive EBITDAS. A reconciliation of net income to EBITDAS is included in the financial tables below.

As of June 30, 2009, Wave had total current assets of $2.4 million which does not reflect the net proceeds of approximately $4.2 million from two equity financings completed in July 2009. Wave’s deferred revenue was $1.2 million at June 30, as compared with $1.5 million at the end of Q1 ‘09.

Steven Sprague, president and CEO of Wave Systems, commented, "We are pleased to report top- and bottom-line progress for the second quarter which has yielded our first-ever quarter of positive EBITDAS. Our total net revenue through the first six months of 2009 has exceeded total net revenue for all of last year. We have also posted the third consecutive quarter of reduced overhead levels, highlighting our continuing focus on cost management. Notwithstanding these positive developments, Wave continued to feel the effects of the economic down-turn, as have many other technology companies. On the software upgrade sales front, though we made progress in the second quarter, enterprise upgrade sales in Q2 didn’t grow as quickly as we would have liked.

"Nonetheless, we are encouraged by customer interest in enterprise upgrades, though many prospective customers have slashed their IT spending or put a temporary moratorium on new orders. Though still at modest volume levels, we continued to see growth in enterprise adoption of self-encrypting drives and EMBASSY® Remote Administration Server enterprise seats during the second quarter."

"There have been a number of positive developments on the partner and industry front," Sprague continued. "Last month, Dell began shipping the new self-encrypting, solid-state drives (SSD) from Samsung. A number of our customers have expressed interest in evaluating Samsung’s SSDs, which we believe offer superior performance and security features. Our partners have also helped in promoting self-encrypting drives, biometrics, human interface devices (HID) and Trusted Platform Modules (TPM). We continue to focus our efforts on supporting our partners’ platforms and working to offer world-class security at an attractive price. One particular benefit of our partner relationships is that our security solutions can be installed and configured at the factory, substantially simplifying their deployment for large or small enterprises.

"In another significant development, for the first time ever, the U.S. Army listed self-encrypting drives on its consolidated buy program for orders of desktop and notebook computers. Self-encrypting drives and TPMs are important tools that can enable the government to secure its vast network of computers and sensitive data. Accordingly, we view the DoD and the federal government as very important customers, and are continuing to pursue opportunities in this arena, as well as other vertical markets."

Summary of Recent Progress/Developments:

 

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

This press release may contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995 and 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.  Wave assumes no duty to and does not undertake to update forward-looking statements.

All brands are the property of their respective owners.

For more information please contact:

Wave Contact:
Gerard T. Feeney, CFO
Wave Systems Corp.
413-243-1600
info@wave.com

 

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

 

Three months ended

 

Six months ended

 

June 30, 2009

 

June 30, 2008

 

June 30, 2009

 

June 30, 2008

Net revenues:

 

 

 

 

 

 

 

  Licensing

$4,424,492  

 

$1,946,100  

 

$8,155,388 

 

$3,621,605  

   Services

373,148

 

39,193

 

676,433

 

62,767

Total net revenues

4,797,640

 

1,985,293

 

8,831,821

 

3,684,372

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

  Licensing — cost of sales

184,729

 

209,707

 

350,401

 

368,868

Services — cost of sales

202,441

 

29,869

 

384,829

 

48,183

  Selling, general, and administrative

2,948,138

 

4,243,656

 

6,326,659

 

8,540,746

  Research and development

1,800,962

 

3,145,326

 

3,626,086

 

6,398,805

  Total operating expenses

5,136,270

 

7,628,558

 

10,687,975

 

15,356,602

  Operating loss

(338,630)

 

(5,643,265)

 

(1,856,154)

 

(11,672,230)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

  Interest income

375

 

3,370

 

484

 

22,287

  Interest expense

(5,497)

 

                 –

 

(11,314)

 

                 –

  Total other income (expense)

(5,122)

 

3,370

 

          (10,830)

 

22,287

 

 

 

 

 

 

 

 

Net loss

$(343,752)

 

$(5,639,895)

 

$(1,866,984)

 

$(11,649,943)

 

 

 

 

 

 

 

 

Loss per common share — basic and diluted

$(0.01)      

 

$(0.10)      

 

$(0.03)       

 

$(0.22)       

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period

66,375,990

 

53,949,513

 

64,134,741

 

52,424,014

 

 

 

 

 

 

 

 

 

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Supplemental Schedules
(Unaudited)

 

Three months ended

 

Six months ended

 

June 30, 2009

 

June 30, 2008

 

June 30, 2009

 

June 30, 2008

Total net revenues

$4,797,640

 

$1,985,293

 

$8,831,821

 

$3,684,372

Increase (decrease) in deferred revenue

(202,952)

 

232,707

 

(234,501)

 

299,614

 

 

 

 

 

 

 

 

Total billings (Non-GAAP)

$4,594,688

 

$2,218,000

 

$8,597,320

 

$3,983,986

 

Net loss as reported

$(343,752)

 

$(5,639,895)

 

$(1,866,984)

 

$(11,649,943)

Interest (income) expense

5,122

 

(3,370)

 

10,830

 

(22,287)

Income tax (benefit) expense

                 –

 

                 –

 

                 –

 

                 –

Depreciation and amortization

63,072

 

88,222

 

125,563

 

174,038

Stock-based compensation expense

419,385

 

588,450

 

841,424

 

1,205,239

 

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$143,827

 

$(4,966,593)

 

$(889,167)

 

$(10,292,953)


Non-GAAP Financial Measures:

As supplemental information, we provide the non-GAAP performance measures that we refer to as total billings and EBITDAS. Total billings is provided in addition to, but not as a substitute for, GAAP total net revenues. Total billings means the sum of total net revenues determined in accordance with GAAP, plus the increase or minus the decrease in deferred revenue. We consider total billings an important measure of our financial performance, as we believe it best represents the continued increase in demand for our software license upgrades. Total billings is not a measure of financial performance under GAAP and, as calculated by us, may not be consistent with computations of total billings by other companies. 

EBITDAS is defined as net income (loss) before interest income (expense), income taxes, depreciation and amortization and stock-based compensation. EBITDAS should not be construed as a substitute for net income (loss) or net cash provided by (used in) operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows, as EBITDAS is not defined by GAAP. However, we regard EBITDAS as a complement to net income (loss) and other GAAP financial performance measures, including an indirect measure of operating cash flow.

 

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

 

 

 

June 30,

 

December 31,

 

2009

 

2008

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$506,460

 

$951,563

Accounts receivable, net of allowance for doubtful accounts of $16,364

 

 

 

      June 30, 2009 and December 31, 2008

1,638,697

 

1,701,829

Prepaid expenses

278,688

 

227,967

     Total current assets

2,423,845

 

2,881,359

Property and equipment, net

303,217

 

408,440

Other assets

129,639

 

139,975

Total Assets

2,856,701

 

3,429,774

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

7,016,773

 

7,655,834

Current portion of capital lease payable

60,445

 

63,537

Deferred revenue

1,249,543

 

1,484,044

     Total current liabilities

8,326,761

 

9,203,415

Long-term portion of capital lease payable

215,024

 

245,362

Total liabilities

8,541,785

 

9,448,777

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

8% Series I Convertible Preferred stock, $.01 par value. 220 shares issued and outstanding (liquidation preference of $968,000) in 2009 and 2008

2

 

2

Series J Convertible Preferred stock, $.01 par value. 91 shares issued and
-0- outstanding (liquidation preference of $-0-) in 2009 and 91 shares issued and outstanding (liquidation preference of $364,000) in 2008

 

1

8% Series K Convertible Preferred stock, $.01 par value. 456 shares issued and -0- outstanding (liquidation preference of $-0-) in 2009 and 456 shares issued and outstanding (liquidation preference of $1,276,800) in 2008

 

5

Common stock, $.01 par value. Authorized 150,000,000 shares as Class A;
 67,379,602 shares issued and outstanding in 2009 and 58,877,968 in 2008

673,796

 

588,780

Common stock, $.01 par value. Authorized 13,000,000 shares as Class B; 38,232 shares issued and outstanding in 2009 and 2008

382

 

382

Capital in excess of par value

340,197,584

 

338,081,691

Accumulated deficit

(346,556,848)

 

(344,689,864)

Total Stockholders’ Equity (Deficit)

(5,685,084)

 

(6,019,003)

Total Liabilities and Stockholders’ Equity (Deficit)

$2,856,701

 

$3,429,774