SOURCE: Wave Systems Corp.

Wave Systems Corp.

August 10, 2009 16:02 ET

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--(Marketwire - 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:

--  In May, the U.S. Army's CHESS (Computer Hardware Enterprise Software
    and Solutions) organization listed self-encrypting hard drives (SED) from
    Seagate and Samsung, along with Wave management software, through the
    consolidated buy (9) period from June through September.  This is the first
    time SEDs were included as an option in the Army's consolidated buy.
    
--  Dell began shipping self-encrypting solid-state drives from Samsung
    bundled with Wave management software in July.  Additionally, Dell and
    Samsung participated with Wave in a webinar for industry media and
    technology analysts which providing background on solid state SEDs.
    
--  Wave's eSignSystems division was named to Mortgage Technology
    magazine's elite "Top 50 Service Providers" list, recognizing eSign for its
    contributions to the burgeoning electronic mortgage space.
    
--  Admiral Bobby R. Inman, USN (Ret.) Appointed as Advisor to Wave's
    Board. In May, Admiral Inman assumed the title of Advisory Director and
    will advise the company on its strategy and business development efforts in
    the government, military, technology and energy markets.
    

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 http://www.wave.com.

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.



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

                        Three months ended          Six months ended
                      June 30,      June 30,      June 30,      June 30,
                        2009          2008          2009          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,      June 30,      June 30,      June 30,
                        2009          2008          2009          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
                                                ============  ============


Conference call:       Today, August 10, 2009 at 4:30 P.M. EDT
Webcast / Replay URL:  www.wave.com/news/webcasts
Dial-in numbers:       212-231-2921 or 415-226-5360

Contact Information

  • Contact:
    Gerard T. Feeney, CFO
    Wave Systems Corp.
    413-243-1600
    Email Contact