SOURCE: Wave Systems Corp.

Wave Systems Corp.

November 09, 2009 16:02 ET

Wave Q3 Revenues Rose 164% to $4.8 Million With Record Total Billings of $5.2 Million

Q3'09 Was Wave's Second Consecutive Quarter of Positive EBITDAS

LEE, MA--(Marketwire - November 9, 2009) - Wave Systems Corp. (NASDAQ: WAVX) ( today reported results for the third quarter (Q3) and nine months ended September 30, 2009 and reviewed recent corporate progress and developments.

Principally reflecting higher bundled software royalties, services revenue and increased software upgrade sales, Wave's Q3 2009 net revenues rose 164% to $4.8 million, compared with Q3 2008 net revenues of $1.8 million. Q3 '09 net revenues rose 1% over Q2 '09 due to a 7% increase in licensing revenue that more than offset a decline in services revenue related to the completion of a government contract in Q3 '09. Total billings for Q3 2009 grew 13% to $5.2 million compared to Q2 '09 and grew 126% as compared to Q3 '08. A reconciliation of total billings to total net revenues is provided below.

Reflecting ongoing cost reduction efforts aimed at improving Wave's cash flow from operations, Q3 '09 SG&A expense declined by 27% to $2.9 million from $4.0 million in Q3 '08, while research and development expenses were reduced by 35% to $2.1 million from $3.2 million in Q3 '08. On a sequential basis, Q3 '09 SG&A was in line with Q2 '09 SG&A while research and development expense increased 15% from $1.8 million in Q2 '09 as a result of required investments in product development.

Wave's Q3 '09 net loss was $479,000, or $0.01 per basic and diluted share, compared with a Q3 '08 net loss of $5.6 million, or $0.10 per basic and diluted share, and Wave's Q2 2009 net loss of $344,000, 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 2009 and 2008 of 71.8 million and 57.9 million, respectively, and 66.4 million in the second quarter of 2009.

To highlight its operational performance on a cash-flow basis, Wave reports EBITDAS, a non-GAAP measure defined as earnings before interest income (expense), income taxes, depreciation and amortization and stock-based compensation expense. For Q3 '09 Wave reported its second consecutive quarter of positive EBITDAS. Q3 '09 EBITDAS was $60,000, compared to negative EBITDAS of $5.0 million in Q3 '08. A reconciliation of net income to EBITDAS is provided below.

As of September 30, 2009, Wave had total current assets of $5.2 million as compared to $2.4 million at June 30, 2009 and compared with $2.9 million at December 31, 2008. Wave's deferred revenue rose to $1.6 million at September 30 as compared with $1.2 million at the end of Q2 '09.

Steven Sprague, President and CEO of Wave Systems, commented, "Having achieved year-over-year and quarterly growth in our software licensing sales, despite ongoing challenges in tech sector spending, Wave was able to report total net revenue of $4.8 million in Q3 '09, as well as record total billings of $5.2 million. Of equal importance, Wave achieved positive EBITDAS for the second straight quarter."

"We continue to see encouraging interest in our EMBASSY security solutions for managing self-encrypting hard drives," Sprague added. "Shipments of our EMBASSY Trusted Drive Manager with self-encrypting drives sold by our OEM customers increased 42 percent in Q3 '09 versus Q2 '09. While the shipment volumes remain relatively modest, we are pleased with our continued progress on this front.

"In Q3 '09, our billings attributable to upgrades to our EMBASSY Remote Administration Server (ERAS) grew 98 percent over Q2 '09. We completed ERAS upgrade sales across market segments in the U.S. and Europe, including advertising, aerospace, construction, finance, government, healthcare, IT, legal, non-profit, utilities and telecommunications. In addition, we completed an installation of EMBASSY software for the management of Trusted Platform Modules (TPMs) to strengthen the security of user certificates for one of the world's largest professional services firms.

"Finally, we recently reported a $1.6 million professional services contract from a U.S. government agency which followed an earlier $786,000 services contract completed in Q3 '09. We continue to actively support their review and analysis of trusted computing solutions," Sprague concluded.

Summary of Recent Progress/Developments:

--  In September Wave announced its participation in the first open pilot
    program to enable the public to register and participate in government
    websites without creating new user names and passwords.  Wave joined
    Yahoo!, PayPal, Google, Equifax, AOL, Citi and others in offering solutions
    based on OpenID and Information Card technologies.  Wave developed a
    service that combined the hardware security of the TPM with open identities
    for secure, single sign-on access to Web services, utilizing OpenID and
    Security Assertion Markup Language (SAML).
--  At Digital ID World in September Wave released and demonstrated a beta
    version of, its new identity service for strong authentication
    and single-sign on to Web services and applications in the Cloud. takes advantage of the TPM security chip to secure users'
    authentication identities with keys held in the TPM.
--  During the Intel Developers Forum in San Francisco, Wave demonstrated
    remote, out-of-band management of self-encrypting drives using Intel®
    vPro™ Technology with Wave's EMBASSY® client and server software.  The
    solution allows a secure network unlock of the drives automatically by an
    administrator, regardless of whether the PC is powered on or not and
    independent of the operating system.
--  Systems integrator NCI Information Systems (NCI) named Wave Systems as
    one of its subcontractors for the U.S. General Services Administration
    (GSA) Alliant prime contract.
--  Wave continued to ramp its global marketing efforts demonstrating at
    GITEX Technology Week in Dubai at Dell's booth.  The show, which attracted
    more than 100,000 attendees, is one of the world's largest information
    technology exhibitions.  Wave showcased its advanced lifecycle management
    tools for self-encrypting drives available directly from Dell.
--  Wave's eSignSystems division was named to Mortgage Technology
    magazine's elite "Lasting Impact Award," recognizing eSign for its
    contributions to the burgeoning electronic mortgage space.

About Wave Systems Corp.

Wave provides software to help solve critical enterprise PC security challenges such as strong authentication, data protection, network access control and the management of these enterprise functions. Wave is a pioneer in hardware-based PC security and 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) and supports the TCG's "Opal" self-encrypting drive standard. Self-encrypting drives are a growing segment of the data protection market, offering increased security and better performance than many existing software-based encryption solutions. TPMs are included on an estimated 300 million PCs and are standard equipment on many enterprise-class PCs shipping today. Using TPMs and Wave software, enterprises can substantially and cost-effectively strengthen their current security solutions. For more information about Wave and its solutions, visit

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.

                  Consolidated Statements of Operations

                          Three months ended         Nine months ended
                        September    September    September     September
                         30, 2009     30, 2008     30, 2009     30, 2008
                        ----------  -----------  -----------  ------------
Net revenues:
    Licensing           $4,717,523  $ 1,821,225  $12,872,911  $  5,442,830
    Services               126,283       13,482      802,716        76,249
                        ----------  -----------  -----------  ------------
Total net revenues       4,843,806    1,834,707   13,675,627     5,519,079
                        ----------  -----------  -----------  ------------

Operating expenses:
   Licensing               232,661      198,354      583,062       567,222
Services                    71,041        8,614      455,870        56,797
   Selling, general,
    and administrative   2,942,158    4,048,641    9,268,818    12,589,387
   Research and
    development          2,071,652    3,177,408    5,697,738     9,576,213
                        ----------  -----------  -----------  ------------
   Total operating
    expenses             5,317,512    7,433,017   16,005,488    22,789,619
                        ----------  -----------  -----------  ------------
   Operating loss         (473,706)  (5,598,310)  (2,329,861)  (17,270,540)
                        ----------  -----------  -----------  ------------

Other income (expense):
   Interest income             167        1,395          651        23,682
   Interest expense         (5,177)      (7,817)     (16,491)       (7,817)
                        ----------  -----------  -----------  ------------
   Total other income
    (expense)               (5,010)      (6,422)     (15,840)       15,865
                        ----------  -----------  -----------  ------------

Net loss                $ (478,716) $(5,604,732) $(2,345,701) $(17,254,675)
                        ==========  ===========  ===========  ============

Loss per common share -
 basic and diluted      $    (0.01) $     (0.10) $     (0.04) $      (0.32)

Weighted average number
 of common shares
 outstanding during the
 period                 71,799,844   57,896,307   66,717,852    54,261,426

                    Consolidated Supplemental Schedules

                          Three months ended         Nine months ended
                        September    September    September     September
                         30, 2009     30, 2008     30, 2009     30, 2008
                        ----------  -----------  -----------  ------------

Total net revenues      $4,843,806  $ 1,834,707  $13,675,627  $  5,519,079
Increase in deferred
 revenue                   350,156      461,921      115,655       761,535
                        ----------  -----------  -----------  ------------

Total billings
 (Non-GAAP)             $5,193,962  $ 2,296,628  $13,791,282  $  6,280,614
                        ==========  ===========  ===========  ============

Net loss as reported    $ (478,716) $(5,604,732) $(2,345,701) $(17,254,675)
Interest (income)
 expense                     5,010        6,422       15,840       (15,865)
Income tax (benefit)
 expense                         -            -            -             -
Depreciation and
 amortization               65,387      105,290      190,950       279,328
 compensation expense      468,041      501,008    1,309,465     1,706,247
                        ----------  -----------  -----------  ------------

EBITDAS (Non-GAAP)      $   59,722  $(4,992,012) $  (829,446) $(15,284,965)
                        ==========  ===========  ===========  ============

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.

                        Consolidated Balance Sheets

                                                September 30, December 31,
                                                    2009          2008
                                                ------------  ------------
Current assets:
  Cash and cash equivalents                     $  3,137,299  $    951,563
  Accounts receivable, net of allowance for
   doubtful accounts of $-0- at September 30,
   2009 and $16,364 at December 31, 2008           1,678,750     1,701,829
  Prepaid expenses                                   381,049       227,967
                                                ------------  ------------
      Total current assets                         5,197,098     2,881,359
  Property and equipment, net                        278,054       408,440
  Other assets                                       132,161       139,975
                                                ------------  ------------
Total Assets                                       5,607,313     3,429,774
                                                ============  ============

Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
  Accounts payable and accrued expenses            5,228,290     7,655,834
  Current portion of capital lease payable            60,686        63,537
  Deferred revenue                                 1,599,699     1,484,044
                                                ------------  ------------
      Total current liabilities                    6,888,675     9,203,415
  Long-term portion of capital lease payable         199,415       245,362
                                                ------------  ------------
  Total liabilities                                7,088,090     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. -0- shares issued and 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. -0- shares issued and 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; 72,742,818 shares
 issued and outstanding in 2009 and
 58,877,968 in 2008                                  727,428       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                   344,826,976   338,081,691
Accumulated deficit                             (347,035,565) (344,689,864)
                                                ------------  ------------
    Total Stockholders' Equity (Deficit)          (1,480,777)   (6,019,003)
                                                ------------  ------------
Total Liabilities and Stockholders' Equity
 (Deficit)                                      $  5,607,313  $  3,429,774
                                                ============  ============

Conference call:        Today, November 9, 2009 at 4:30 P.M. EST
Webcast / Replay URL:
Dial-in numbers:        212-231-2904 or 415-226-5358

Contact Information

  • Contact:
    Gerard T. Feeney
    Wave Systems Corp.
    Email Contact