SOURCE: Wave Systems Corp.

Wave Systems Corp.

August 13, 2015 16:05 ET

Wave Reports Q2 '15 Results

Note: Participant Dial-in Number Has Changed to 800-734-8507

LEE, MA--(Marketwired - Aug 13, 2015) - Wave Systems Corp. (NASDAQ: WAVX), an enterprise security software provider, today reported second quarter (Q2 '15) results for the period ended June 30, 2015. Wave will host a live webcast https://www.wave.com/resource-center/webcasts and conference call (800-734-8507) today at 4:30 p.m. ET to review its Q2 '15 results and progress to date in 2015.

Global Restructuring
On July 28, 2015, Wave initiated a global restructuring of its business in conjunction with a review of the Company's options for raising capital and pursuing customer transactions and other strategic alternatives. Wave's restructuring involved reducing the Company's global workforce to a core team specifically selected to maintain operations and critical competencies in all strategic technical, customer support, sales and administrative functions. The staffing cuts are expected to reduce quarterly operating expenses by 50% to approximately $3.5 million per quarter with the full benefit not being reflected until Q4 '15 as a result of foreign labor regulations. Even with these cost reductions, Wave will require additional financing in the short term in order to continue current operations and to pursue capital raising or other strategic transactions. 

Q2 '15 and Year-to-Date Financial Overview
Q2 '15 total billings were $1.9 million versus $3.6 million in Q2 '14. The change was due to a $1.3 million decrease in OEM royalties, principally due to lower Dell-related OEM bundling activity, and a $0.4 million decrease in enterprise licensing and maintenance billings in Wave's small customer class. Q2 '15 total billings of $1.9 million compared to $4.4 million in Q1 '15, reflecting a $2.3 million, multi-year order from a major, US-headquartered insurance company for over 250,000 licenses of both Wave Protector and Wave Reporter in Q1 '15.

Year-to-date 2015 total billings were $6.3 million compared to $8.5 million in 2014. The change reflected a $3.1 million decrease in OEM royalties and a decrease of $0.3 million in service billings, offset by $1.2 million increase in enterprise licensing and maintenance billings. The $1.2 million increase in enterprise licensing and maintenance billings was primarily attributable to the $2.3 million, multi-year order billed in Q1 '15. The reduction in OEM royalties was principally due to a decrease in Dell-related OEM bundling activity, while the decrease in service billings was due to a partner contract executed in 2014 that was not repeated in 2015.

Wave's Q2 '15 total net revenues were $2.6 million compared to $4.4 million in Q2 '14 and $2.5 million in Q1 '15. The change in net revenues from Q2 '15 to Q2 '14 resulted from a $1.4 million decrease in OEM royalties, principally due to Dell-related OEM bundling, and a $0.4 million decrease in enterprise licensing and maintenance net revenues.

Year-to-date 2015 total net revenues were $5.0 million compared to $9.8 million in 2014, as a result of a $3.4 million decrease in OEM royalties, principally due to Dell-related OEM bundling, and a $1.4 million decline in enterprise licensing and maintenance revenue. 

As of June 30, 2015, Wave fully impaired the remaining goodwill and intangible assets of its Safend reporting unit and the remaining carrying value of its internal-use software, yielding a non-cash impairment charge of $3.2 million. The impairment charge reflects uncertainty about future operating results as compared to prior management expectations. Including the $3.2 million impairment charge, Q2 '15 total operating expenses were $9.9 million versus $8.2 million in Q2 '14. Excluding the impairment charge, total operating expenses were $6.7 million in Q2 '15 versus $8.2 million in Q2 '14, reflecting the benefit of the company's operating expense management.

Reflecting the impairment charge, year-to-date 2015 total operating expenses were $17.1 million compared to $16.8 million in 2014. Excluding the charge, year-to-date 2015 total operating expenses were $13.9 million versus $16.8 million in 2014, reflecting the benefit of operating expense management disciplines implemented in Q2 '14.

Wave's Q2 '15 net loss was $7.1 million, or ($0.13) per basic share, compared to a net loss of $3.8 million, or ($0.09) per basic share in Q2 '14, and a net loss of $4.9 million, or ($0.10) per basic share, in Q1 '15. Wave's weighted average basic shares outstanding were 55.3M, 41.7M and 49.9M in Q2 '15, Q2 '14 and Q1 '15, respectively.

Working Capital & Other

  • Wave's total current assets were $4.5 million at June 30, 2015, and total current liabilities were $10.2 million, including $5.2 million in short-term deferred revenue. Cash and cash equivalents were $2.8 million at June 30, 2015, compared to $1.8 million at December 31, 2014.

  • Total deferred revenue was $7.3 million at June 30, 2015 compared to $6.0 million at December 31, 2014, reflecting an increase in enterprise licensing and maintenance billings during the six-months ended June 30, 2015.

CEO Commentary
"Wave has taken aggressive action to restructure our organization to retain the critical technical capabilities and highest potential products and projects while substantially reducing our cash burn rate. In addition, Wave will pursue additional financing to allow us to continue our operations as well as other strategic alternatives," said Bill Solms, President and CEO, Wave Systems Corp. "While Wave's solutions continue to win technical evaluations against our competition conducted by our prospective customers, our small size and limited financial resources have made it difficult to meet our objectives of closing those large enterprise sales. The Management and Board of Wave are evaluating courses of action to address these challenges and our immediate need for additional capital."

About Wave Systems
Wave Systems Corp. reduces the complexity, cost and uncertainty of authentication and data protection by starting inside the device. Unlike other vendors who try to secure information by adding layers of software for security, Wave leverages the security capabilities built directly into endpoint computing platforms themselves. Wave is a leading expert in this growing trend and is leading the way with first-to-market solutions and helped shape standards through its board seat on the Trusted Computing Group.

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, 2015     June 30, 2014     June 30, 2015     June 30, 2014  
Net revenues:                                
  Licensing and maintenance   $ 2,575,136     $ 4,439,820     $ 5,027,671     $ 9,772,359  
Total net revenues     2,575,136       4,439,820       5,027,671       9,772,359  
                                 
Operating expenses:                                
Licensing and maintenance - cost of net revenues     383,938       338,519       828,732       651,347  
Selling, general, and administrative     3,788,902       5,381,167       8,090,576       10,583,135  
Research and development     2,489,025       2,474,413       4,988,071       5,539,086  
Impairment of goodwill     1,448,000       --       1,448,000       --  
Impairment of amortizable intangible assets     1,753,546       --       1,753,546       --  
Total operating expenses     9,863,411       8,194,099       17,108,925       16,773,568  
                                 
Operating loss     (7,288,275 )     (3,754,279 )     (12,081,254 )     (7,001,209 )
                                 
Other income (expense), net:                                
Net currency transaction loss     (23,643 )     (2,238 )     (73,738 )     (3,949 )
Change in fair value of warrant liability     293,825       --       293,825       --  
Net interest expense     (60,194 )     (39,013 )     (121,132 )     (83,877 )
                                 
Total other income (expense), net     209,988       (41,251 )     98,955       (87,826 )
Net loss   $ (7,078,287 )   $ (3,795,530 )   $ (11,982,299 )   $ (7,089,035 )
                                 
Loss per common share - basic and diluted   $ (0.13 )   $ (0.09 )   $ (0.23 )   $ (0.18 )
                                 
Weighted average number of common shares outstanding during the period     55,285,209       41,684,076       52,629,434       40,094,319  
                                 
   
WAVE SYSTEMS CORP. AND SUBSIDIARIES  
Consolidated Supplemental Schedules  
(Unaudited)  
   
    Three months ended     Six months ended  
    June 30, 2015     June 30, 2014     June 30, 2015     June 30, 2014  
                                 
Total net revenues   $ 2,575,136     $ 4,439,820     $ 5,027,671     $ 9,772,359  
(Decrease) increase in deferred revenue     (674,625 )     (814,911 )     1,248,514       (1,241,611 )
                                 
Total billings (Non-GAAP)   $ 1,900,511     $ 3,624,909     $ 6,276,185     $ 8,530,748  
                                 
                                 
Net loss as reported   $ (7,078,287 )   $ (3,795,530 )   $ (11,982,299 )   $ (7,089,035 )
Net interest expense     60,194       39,013       121,132       83,877  
Depreciation and amortization     168,673       225,251       374,425       461,899  
Share-based compensation expense     (12,719 )     437,561       96,529       851,844  
Change in fair value of warrant liability     (293,825 )     --       (293,825 )     --  
Impairment of goodwill and amortizable intangible assets     3,201,546       --       3,201,546       --  
                                 
EBITDAS (Non-GAAP)   $ (3,954,418 )   $ (3,093,705 )   $ (8,482,492 )   $ (5,691,415 )
                                 

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. For the three months ended March 31, 2015, total billings were $4,375,674 and consisted of total net revenues of $2,452,534 adjusted for an increase in deferred revenue of $1,923,140.

EBITDAS is defined as net income (loss) before interest income (expense), income taxes, depreciation, amortization and share-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. For the three months ended March 31, 2015, negative EBITDAS was $(4,528,074) and consisted of net loss as reported of $(4,904,012) adjusted for net interest expense of $60,938, depreciation and amortization of $205,752 and share-based compensation expense of $109,248.

   
WAVE SYSTEMS CORP. AND SUBSIDIARIES  
Consolidated Balance Sheets  
(Unaudited)  
   
    June 30,
2015
    December 31,
2014
 
Assets                
Current assets:                
  Cash and cash equivalents   $ 2,794,027     $ 1,777,414  
  Accounts receivable, net of allowance for doubtful accounts of $-0- June 30, 2015 and December 31, 2014     1,312,015       1,820,945  
  Prepaid expenses and other current assets     419,860       397,689  
    Total current assets     4,525,902       3,996,048  
  Property and equipment, net     367,491       411,755  
  Amortizable intangible assets, net     --       2,008,227  
  Goodwill     --       1,448,000  
  Other assets     171,079       169,330  
Total Assets     5,064,472       8,033,360  
                 
Liabilities and Stockholders' Deficit                
Current liabilities:                
  Accounts payable and accrued expenses     3,472,856       3,918,493  
  Warrant liability     1,553,075       --  
  Deferred revenue     5,205,770       5,125,932  
    Total current liabilities     10,231,701       9,044,425  
  Other long-term liabilities     40,734       50,779  
  Royalty liability     5,085,680       4,982,306  
  Long-term deferred revenue     2,105,617       871,677  
    Total liabilities     17,463,732       14,949,187  
                 
Stockholders' Deficit:                
Common stock, $.01 par value. Authorized 150,000,000 shares as Class A; 59,946,141 shares issued and outstanding at June 30, 2015 and 45,962,324 at December 31, 2014     599,461       459,623  
Common stock, $.01 par value. Authorized 13,000,000 shares as Class B; 8,885 shares issued and outstanding at June 30, 2015 and December 31, 2014     89       89  
Capital in excess of par value     429,104,567       422,745,539  
Accumulated deficit     (442,103,377 )     (430,121,078 )
    Total Stockholders' Deficit     (12,399,260 )     (6,915,827 )
Total Liabilities and Stockholders' Deficit   $ 5,064,472     $ 8,033,360  
                 

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