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Monday, November 8, 2010 at 4:30 P.M. EST
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Wave Q3 Revenues Rose 38% to $6.7 Million Driven By Software License Activity

— Reviews New Product Developments, Partner Progress and Customer Adoption —

Lee, MA — November 8, 2010 Wave Systems Corp. (NASDAQ: WAVX — www.wave.com), today reported operating results for the third quarter (Q3) and nine months ended September 30, 2010. Wave also reported on recent new product developments, partner progress and customer adoption.

Benefiting from continued growth in enterprise software license sales, as well as increased shipments of Wave’s software bundled with enterprise PCs featuring a Trusted Platform Module (TPM) security chip and/or a self-encrypting drive (SED), Wave’s Q3 ’10 net revenues rose 38% to $6.7 million versus $4.8 million in Q3 ’09. Q3 ’10 net revenues also rose 4% over Q2 ’10 net revenues of $6.5 million.  Total billings increased 19% to $6.2 million in Q3 ’10, compared to total billings of $5.2 million in Q3 ’09, and declined 3% versus Q2 ’10 total billings of $6.3 million. Net revenue is reconciled to total billings below.

Wave’s R&D expense rose versus Q2 ’10 and Q3 ’09 as the company developed new products and addressed expanded engineering and product development requirements for a broader base of supported OEM products and OEM partners.  Q3 ’10 SG&A expense rose versus Q3 ’09, however, Wave was able to reduce SG&A by 7% versus Q2 ’10 levels. As a result of higher SG&A and R&D expense, Wave’s Q3 ’10 net loss increased to $1.2 million, or $0.01 per basic and diluted share, compared to a Q3 ’09 net loss of $0.5 million, or $0.01 per basic and diluted share, and Wave’s Q2 ’10 net loss of $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 third quarters of 2010 and 2009 of 80.9 million and 71.8 million, respectively, and on a weighted average of 80.3 million basic shares outstanding at June 30, 2010.

Principally reflecting higher operating expenses reviewed above, Wave reported negative EBITDAS of $296,000 for Q3 ’10 compared to positive EBITDAS of $60,000 in Q3 ’09 and negative EBITDAS of $53,000 in Q2 ’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.

Wave’s cash and cash equivalents rose to $4.9 million as of September 30, 2010, compared to $4.5 million on June 30, 2010.  As of September 30, 2010, Wave’s total current assets declined to $8.4 million as compared to $8.5 million at June 30, 2010 and its total current liabilities were $7.1 million, including $2.6 million of deferred revenue, at September 30, 2010 as compared to $7.1 million, including $3.1 million of deferred revenue, at June 30, 2010.

Steven Sprague, President and CEO of Wave Systems, commented, “Q3 was very important for Wave as we achieved another successive period of top-line growth, while continuing to invest heavily in R&D and SG&A to bring new products to market, to support our OEM partners and to further expand our sales and marketing activities. Ongoing investment in R&D is a critical component of Wave’s corporate strategy and is necessary for meeting both customer demand and maintaining a competitive advantage. We believe these investments will further our initiatives in the long run, an example being last week’s launch of Wave for BitLocker® Management. Wave’s BitLocker management solution is intended to leverage the enterprise adoption of Windows 7 and the renewed interest in Microsoft’s native encryption feature that is included in most enterprise versions of Windows 7. 

“We’ve also included BitLocker management capabilities into the latest edition of our flagship EMBASSY® Remote Administration Server (ERAS) as well, giving enterprises the ability to manage encryption or authentication in one easy-to-use, cost-effective package.  Wave is the only ISV to offer management for all three of the leading forms of encryption, be it BitLocker, self-encrypting hard drives or software FDE for legacy systems, in addition to Trusted Platform Modules (TPM). In today’s increasingly complex environment, where we believe many enterprises are looking to adopt a ‘blended’ approach to encryption and authentication, we think this distinction provides a competitive advantage.”

“Generating awareness for our solutions remains a top priority,” Sprague continued.  “Of particular note, during Q3 Wave generated exposure through its active participation in multiple conferences/events that directly addressed Trusted Computing and many of the solutions we provide. Wave was also pleased to receive favorable testimonials from customers such as Boston Medical Center and PricewaterhouseCoopers. Another highlight was the first-ever NSA Trusted Computing Conference, a three-day event in which over 500 participants received an in-depth look at many of the benefits of Trusted Computing.  For many, it was their first real exposure to this novel, but cost-effective approach to computer security.

“We believe this exposure will prove to be an important catalyst to sales opportunities in the coming months and quarters.  Further, as the review of recent progress and developments attests, we believe that interest in hardware-based security solutions is building and that Wave is positioned to benefit.”

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.

For more information please contact:

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

 

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

 

Three months ended

 

Nine months ended

 

September 30, 2010

 

September 30, 2009

 

September 30, 2010

 

September 30, 2009

Net revenues:

 

 

 

 

 

 

 

    Licensing

$6,500,135

 

$4,717,523

 

$18,395,610

 

$12,872,911

    Services

195,317

 

126,283

 

617,943

 

802,716

Total net revenues

6,695,452

 

4,843,806

 

19,013,553

 

13,675,627

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

   Licensing

371,349

 

232,661

 

865,887

 

583,062

Services

117,855

 

71,041

 

434,118

 

455,870

   Selling, general, and administrative

4,265,230

 

2,942,158

 

12,930,865

 

9,268,818

   Research and development

3,115,615

 

2,071,652

 

7,679,614

 

5,697,738

   Total operating expenses

7,870,049

 

5,317,512

 

21,910,484

 

16,005,488

   Operating loss

(1,174,597)

 

(473,706)

 

(2,896,931)

 

(2,329,861)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

   Interest income

148

 

167

 

359

 

651

   Interest expense

(4,023)

 

(5,177)

 

(12,950)

 

(16,491)

   Total other income (expense)

(3,875)

 

(5,010)

 

(12,591)

 

(15,840)

 

 

 

 

 

 

 

 

Net loss

$(1,178,472)

 

$(478,716)

 

$(2,909,522)

 

$(2,345,701)

 

 

 

 

 

 

 

 

Loss per common share – basic and diluted

$(0.01)       

 

$(0.01)       

 

 $(0.04)        

 

 $(0.04)        

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period

80,944,014

 

71,799,844

 

79,491,589

 

66,717,852

 

 

 

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

 

Three months ended

 

Nine months ended

 

 

 

September 30,
2010

 

September 30,
2009

 

September 30,
2010

 

September 30, 2009

Total net revenues

$6,695,452

 

$4,843,806

 

$19,013,553

 

$13,675,627

Decrease in deferred revenue

(532,724)

 

350,156

 

(894,562)

 

115,655

 

 

 

 

 

 

 

 

Total billings (Non-GAAP)

$6,162,728

 

$5,193,962

 

$18,118,991

 

$13,791,282

 

 

 

 

 

 

 

 

Net loss as reported

$(1,178,472)

 

$(478,716)

 

$(2,909,522)

 

$(2,345,701)

Interest income (expense)

3,875

 

5,010

 

12,591

 

15,840

Income tax (benefit) expense

                  –

 

                  –

 

                  –

 

                  –

Depreciation and amortization

156,361

 

65,387

 

347,502

 

190,950

Stock-based compensation expense

722,521

 

468,041

 

2,082,413

 

1,309,465

 

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$(295,715)

 

$59,722

 

$(467,016)

 

$(829,446)

 


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)

 

September 30,

 

December 31,

 

2010

 

2009

Assets

 

 

 

Current assets:

 

 

 

  Cash and cash equivalents

$4,896,415

 

$1,900,014

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

 

 

 

       September 30, 2010 and December 31, 2009

3,103,881

 

3,850,020

  Prepaid expenses

356,064

 

207,343

      Total current assets

8,356,360

 

5,957,377

  Property and equipment, net

443,966

 

237,237

  Intangibles, net

1,008,333

 

                  –

  Other assets

114,469

 

133,311

Total Assets

9,923,128

 

6,327,925

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

Current liabilities:

 

 

 

  Accounts payable and accrued expenses

4,379,946

 

4,441,657

  Current portion of capital lease payable

65,507

 

61,857

  Deferred revenue

2,606,299

 

3,500,861

      Total current liabilities

7,051,752

 

8,004,375

  Long-term portion of capital lease payable

133,908

 

183,505

Total liabilities

7,185,660

 

8,187,880

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

Common stock, $.01 par value.  Authorized 150,000,000 shares as Class A; 
 81,084,323 shares issued and outstanding in 2010 and 75,211,054 in 2009

810,843

 

752,110

Common stock, $.01 par value.  Authorized 13,000,000 shares as Class B; 35,556 shares issued and outstanding in 2010 and 38,232 in 2009

355

 

382

Capital in excess of par value

352,871,907

 

345,423,668

Accumulated deficit

(350,945,637)

 

(348,036,115)

Total Stockholders’ Equity (Deficit)

2,737,468

 

(1,859,955)

Total Liabilities and Stockholders’ Equity (Deficit)

$9,923,128

 

$6,327,925