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Wave Q1 Revenues Rose 45% to $5.9 Million on Continued Growth in Software License Activity

Wave’s EBITDAS Loss Declined to $118,000 from $1 million in Q1 2009

Lee, MA — May 10, 2010 Wave Systems Corp. (NASDAQ: WAVX — www.wave.com) today reported improved operating results for the first quarter (Q1) ended March 31, 2010.

Principally reflecting growth in royalties from enterprise software license sales (previously referred to as "upgrade sales"), as well as from increased shipments of Wave’s software bundled with self-encrypting drives (SEDs), Wave’s Q1 2010 net revenues from software licensing rose 53% to $5.7 million from $3.7 million in Q1 2009. Higher net revenue from software licensing more than offset a year-over-year decline in services revenues related to the timing of work on government-based service contracts and drove a 45% increase in total net revenues to $5.9 million versus $4.0 million in the year-ago period and a 13% increase over Q4 2009 net revenues of $5.2 million. Total billings for Q1 2010 increased 41% to $5.6 million compared to Q1 2009 total billings of $4.0 million. Total billings for Q1 2010 decreased 21% from Q4 2009 total billings $7.1 million, due primarily to $1.9 million in orders for a major U.S. automaker in Q4 2009. Net revenue is reconciled to billings below.

Despite year-over-year and sequential increases in SG&A and R&D expense to support Wave’s growing customer base and OEM relationships, Wave reported a reduced net loss of $764,000, or $0.01 per basic and diluted share, compared to a Q1 2009 net loss of $1.5 million, or $0.02 per basic and diluted share. Wave’s Q4 2009 net loss was $1.0 million, or $0.01 per basic and diluted share. Per-share figures are based on a weighted average number of basic shares outstanding in the first quarters of 2010 and 2009 of 77.2 million and 61.9 million, respectively, and on 73.9 million basic shares outstanding at December 31, 2009.

Wave’s negative EBITDAS improved to $118,000 in Q1 2010 compared to negative EBITDAS of $1,033,000 in Q1 2009 and negative EBITDAS of $513,000 in Q4 2009. EBITDAS is a non-GAAP measure defined as earnings before interest income (expense), income taxes, depreciation and amortization and stock-based compensation expense. Net income is reconciled to EBITDAS below.

Wave’s balance sheet improved during Q1 2010 principally due to the receipt of $1.9 million from a fourth quarter license sale to a major US automaker, as well as from proceeds totaling $3.8 million from warrant and stock option exercises. As of March 31, 2010 Wave’s cash and cash equivalents rose to $5.1 million, from $1.9 million on December 31, 2009. Wave’s total current assets rose to $9.1 million and its total current liabilities — including $3.3 million of deferred revenue — declined to $7.5 million.

Steven Sprague, President and CEO of Wave Systems commented, "Wave continued to make solid financial and operational progress in Q1 2010. We also ended the quarter with significant improvements in our cash and working capital position.

"Enterprise software license sales to first-time and repeat customers rose on a sequential and year-over-year basis as did revenues from software bundled with OEM shipments of SEDs and PCs enabled with Trusted Platform Modules. We believe that our sales and marketing efforts in generating broader customer awareness for our solutions, as well as initial activity under our new distribution partnership with HP, contributed to these increases. We also believe that publicity from a number of high-profile security breaches, as well as from recently implemented regulations that can impose severe financial penalties for unencrypted lost data, continues to generate awareness of, and interest in, hardware-based PC security solutions.

"Healthcare and financial services are verticals where we are seeing strong interest and increased demand given those industries’ needs to secure business, customer, financial, and patient data. We are also pleased with the progress our eSign division is achieving for its digital signing and storage solutions within the mortgage and insurance industries; eSign is now live with three large-scale customers using their MERS-integrated SmartSafe document storage solution."

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
March 31,

 

 

 

2010

 

2009

 

Net revenues:

 

 

 

 

 

   Licensing

 

5,693,521

 

3,730,896

 

   Services

 

175,907

 

303,285

 

Total net revenues

 

$5,869,428

 

$4,034,181

 

Operating expenses:

 

 

 

 

 

  Cost of sales – licensing

 

202,125

 

165,672

 

  Cost of sales – services

 

149,535

 

182,388

 

  Selling, general, and administrative

 

4,090,126

 

3,378,522

 

  Research and development

 

2,187,309

 

1,825,124

 

  Total operating expenses

 

6,629,095

 

5,551,706

 

Operating loss

 

(759,667)

 

(1,517,525)

 

Net interest expense

 

(4,508)

 

(5,708)

 

Net loss

 

(764,175)

 

(1,523,233)

 

Loss per common share — basic and diluted

 

($0.01)

 

     ($0.02)

 

Weighted average number of common shares outstanding during the period

 

77,186,505

 

61,868,589

 

 

 

 

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

 

 

Three Months Ended

 

 

March 31,

 

December 31,

 

 

2010

 

2009

 

2009

Total net revenues

 

$5,869,428

 

$4,034,181

 

$5,213,252

Increase (decrease) in deferred revenue

 

(242,723)

 

(31,549)

 

1,901,162

 

 

 

 

 

 

 

Total billings (Non-GAAP)

 

$5,626,705

 

$4,002,632

 

$7,114,414

Net loss as reported

 

$(764,175)

 

$(1,523,233)

 

$(1,000,554)

Interest expense

 

4,508

 

5,708

 

3,626

Income tax (benefit) expense

 

 

 

Depreciation and amortization

 

68,184

 

62,490

 

68,260

Stock-based compensation expense

 

573,163

 

422,041

 

415,408

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

 

$(118,320)

 

$(1,032,994)

 

$(513,260)


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 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)

 

 

 

March 31,

 

December 31,

 

2010

 

2009

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$5,145,556

 

$1,900,014

Accounts receivable, net of allowance for doubtful accounts of $-0-

 

 

 

      March 31, 2010 and December 31, 2009

3,689,005

 

3,850,020

Prepaid expenses

271,678

 

207,343

     Total current assets

9,106,239

 

5,957,377

Property and equipment, net

252,012

 

237,237

Other assets

127,382

 

133,311

Total Assets

9,485,633

 

6,327,925

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

4,214,018

 

4,441,657

Current portion of capital lease payable

63,051

 

61,857

Deferred revenue

3,258,138

 

3,500,861

     Total current liabilities

7,535,207

 

8,004,375

Long-term portion of capital lease payable

167,287

 

183,505

Total liabilities

7,702,494

 

8,187,880

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

Common stock, $.01 par value. Authorized 150,000,000 shares as Class A; 79,465,628 shares issued and outstanding in 2010 and 75,211,054 in 2009

794,656

 

752,110

Common stock, $.01 par value. Authorized 13,000,000 shares as Class B; 38,232 shares issued and outstanding in 2010 and 2009

382

 

382

Capital in excess of par value

349,788,391

 

345,423,668

Accumulated deficit

(348,800,290)

 

(348,036,115)

Total Stockholders’ Equity (Deficit)

1,783,139

 

(1,859,955)

Total Liabilities and Stockholders’ Equity (Deficit)

$9,485,633

 

$6,327,925