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Wave Q2 Revenues Rose 34%, to $6.4 Million Driven By Continued Progress in Software License Activity

Announces Recent Customer and OEM Progress

Lee, MA — August 9, 2010 Wave Systems Corp. (NASDAQ: WAVX — www.wave.com) today reported operating results for the second quarter (Q2) and six months ended June 30, 2010. The company also reported on recent customer wins and OEM and partner progress.

Benefiting from growth in royalties from enterprise software license sales (previously referred to as "upgrade sales"), as well as increased shipments of Wave’s software bundled with enterprise PCs that include a Trusted Platform Module (TPM) and/or a self-encrypting drive (SED), Wave’s Q2 ’10 net revenues from software licensing rose 40% to $6.2 million from $4.4 million in Q2 ’09. Including a modest decrease in net services revenues related to government service contracts, Wave’s Q2 ’10 net revenues rose 34% to $6.4 million versus $4.8 million in Q2 ’09 and rose 10% over Q1 ’10 net revenues of $5.9 million. Total billings increased 38% to $6.3 million in Q2 ’10, compared to total billings of $4.6 million in Q2 ’09, and rose 12% versus Q1 ’10 total billings of $5.6 million. Net revenue is reconciled to billings below.

Reflecting increased investments in SG&A and R&D to support Wave’s OEM relationships, its expanding base of customers and an array of product enhancements, Wave’s Q2 ’10 net loss increased to $1.0 million, or $0.01 per basic and diluted share, compared to a Q2 ’09 net loss of $0.3 million, or $0.01 per basic and diluted share, and Wave’s Q1 ’10 net loss of $0.7 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 second quarters of 2010 and 2009 of 80.3 million and 66.4 million, respectively, and on a weighted average of 77.2 million basic shares outstanding at March 31, 2010.

Wave reported negative EBITDAS of $53,000 for Q2 ’10 compared to positive EBITDAS of $144,000 in Q2 ’09 and negative EBITDAS of $118,000 in Q1 ’10. 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.

Giving effect to Wave’s second quarter purchase of two U.S. patents on core technology underlying SEDs for $1.1 million in cash, as of June 30, 2010, Wave’s cash and cash equivalents declined to $4.5 million compared to $5.1 million on March 31, 2010. As of June 30, 2010, Wave’s total current assets declined to $8.5 million as compared to $9.1 million at March 31, 2010 and its total current liabilities declined to $7.1 million, including $3.1 million of deferred revenue, from $7.5 million at March 31, 2010.

Steven Sprague, President and CEO of Wave Systems, commented, "Wave’s improved second quarter revenues reflected sequential and year-over-year increases in both enterprise software sales activity, as well as a higher volume of OEM software bundling with PCs incorporating TPMs. The increase in bundling activity reflected a rebound in PC shipments by our OEM partners.

"To support growing interest we are seeing in trusted computing solutions, we have increased investments in sales and marketing and in R&D, generally in line with our revenue performance. We believe these investments are critical to the continued expansion of our business and to address OEM partner and customer interest in our products. Significant developments include Dell’s plans to significantly enhance the user interface for Wave’s solutions in next year’s commercial PCs and Acer’s decision to expand its relationship with Wave beyond enterprise desktops to include business notebook systems.

"We are also seeing continued adoption of our enterprise solutions by customers in new markets, including a national online brokerage services firm and a large integrated healthcare delivery system. We review some new customer developments below.

"We are also encouraged by our continued services work with the U.S. government and are dedicating substantial resources to support this project and are particularly encouraged by the visibility they will be giving to trusted computing solutions at a conference in September."

Summary of Recent Progress/Developments:

OEM/Partner News:

Customer News:

Other News:

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, 2010

 

June 30, 2009

 

June 30, 2010

 

June 30, 2009

Net revenues:

 

 

 

 

 

 

 

   Licensing

$6,201,955  

 

$4,424,492  

 

$11,895,475 

 

$8,155,388 

   Services

246,719

 

373,148

 

422,626

 

676,433

Total net revenues

6,448,674

 

4,797,640

 

12,318,101

 

8,831,821

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

  Licensing — cost of sales

292,413

 

184,729

 

494,538

 

350,401

Services — cost of sales

166,728

 

202,441

 

316,263

 

384,829

  Selling, general, and administrative

4,575,509

 

2,948,138

 

8,665,635

 

6,326,659

  Research and development

2,376,690

 

1,800,962

 

4,563,999

 

3,626,086

  Total operating expenses

7,411,340

 

5,136,270

 

14,040,435

 

10,687,975

  Operating loss

(962,666)

 

(338,630)

 

(1,722,334)

 

(1,856,154)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

  Net interest expense

(4,319)

 

(5,497)

 

(8,927)

 

(11,314)

 

 

 

 

 

 

 

 

Net loss

$(966,874)

 

$(343,752)

 

$(1,731,050)

 

$(1,866,984)

 

 

 

 

 

 

 

 

Loss per common share — basic and diluted

$(0.01)      

 

$(0.01)      

 

$(0.02)       

 

$(0.03)       

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period

80,302,956

 

66,375,990

 

78,753,340

 

64,134,741

 

 

 

 

 

 

 

 

 

 

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

 

Three months ended

 

Six months ended

 

 

 

June 30, 2010

 

June 30, 2009

 

June 30, 2010

 

June 30, 2009

Total net revenues

$6,448,674

 

$4,797,640

 

$12,318,101

 

$8,831,821

Decrease in deferred revenue

(119,115)

 

(202,952)

 

(361,838)

 

(234,501)

 

 

 

 

 

 

 

 

Total billings (Non-GAAP)

$6,329,559

 

$4,594,688

 

$11,956,263

 

$8,597,320

Net loss as reported

$(966,874)

 

$(343,752)

 

$(1,731,050)

 

$(1,866,984)

Net interest expense

4,208

 

5,122

 

8,716

 

10,830

Income tax (benefit) expense

                 —

 

                 —

 

                 —

 

                 —

Depreciation and amortization

122,957

 

63,072

 

191,141

 

125,563

Stock-based compensation expense

786,729

 

419,385

 

1,359,892

 

841,424

 

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$(52,980)

 

$143,827

 

$(171,301)

 

$(889,167)

 


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)

 

June 30,

 

December 31,

 

2010

 

2009

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$4,475,446

 

$1,900,014

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

 

 

 

      June 30, 2010 and December 31, 2009

3,769,610

 

3,850,020

Prepaid expenses

290,596

 

207,343

     Total current assets

8,535,652

 

5,957,377

Property and equipment, net

433,113

 

237,237

Intangibles, net

1,063,333

 

                 —

Other assets

127,382

 

133,311

Total Assets

10,159,480

 

6,327,925

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

3,917,302

 

4,441,657

Current portion of capital lease payable

64,267

 

61,857

Deferred revenue

3,139,023

 

3,500,861

     Total current liabilities

7,120,592

 

8,004,375

Long-term portion of capital lease payable

150,757

 

183,505

Total liabilities

7,271,349

 

8,187,880

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

Common stock, $.01 par value. Authorized 150,000,000 shares as Class A;
 80,736,587 shares issued and outstanding in 2010 and 75,211,054 in 2009

807,366

 

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

351,847,548

 

345,423,668

Accumulated deficit

(349,767,165)

 

(348,036,115)

Total Stockholders’ Equity (Deficit)

2,888,131

 

(1,859,955)

Total Liabilities and Stockholders’ Equity (Deficit)

$10,159,480

 

$6,327,925