Lee, MA
April 30, 2015

Wave Systems Corp. (NASDAQ: WAVX), an enterprise security software provider, today reported results for the first quarter ended March 31, 2015 (Q1 ’15). Wave will host a live webcast https://www.wave.com/resource-center/webcasts and conference call (212-231-2902) today at 4:30 p.m. ET to review its Q1 ’15 results and progress to date in 2015.

Q1 Financial Highlights

  • Q1 ’15 total billings for enterprise software license and maintenance sales reached $4.1 million, the highest level in two years. This was primarily attributable to $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.  This is the largest order in Wave's history with respect to the number of licenses sold and reflects the company’s shift in sales to focus on large enterprises.  This order was billed in Q1 ’15 but revenue will be recognized ratably over the 3-year term of the contract.
  • Q1 ’15 total billings decreased to $4.4 million versus Q1 ’14 total billings of $4.9 million.  The decline was due to a $1.8 million decrease in OEM royalties and a $0.3 million decrease in service billings, which were offset by a $1.6 million increase in enterprise licensing and maintenance billings.  The OEM royalties decrease of $1.8 million was principally due to a decrease in Dell-related OEM bundling activity, while the $0.3 million decrease in service billings was due to a contract with a partner that was executed in Q1 ’14 that was not repeated in Q1 ’15.
  • Q1 ’15 total billings increased by $1.5 million or 52% to $4.4 million versus Q4 ’14 total billings of $2.9 million.  The increase is attributable to a $1.8 million rise in enterprise licensing and maintenance billings, offset by a $0.3 million decrease in OEM software bundling royalties.
  • Wave’s Q1 ’15 total net revenues were $2.5 million, a decline from $5.3 million in Q1 ’14 and quarter-over-quarter decline from $2.9 million in Q4 ’14.  The decline in net revenues from Q1 ’14 included a decrease in licensing and maintenance net revenues of $2.9 million; $2.0 million of which was due to a decrease in OEM software bundling revenue, resulting primarily from a decline in shipments of Wave’s solutions under its OEM bundling relationship with Dell and a $0.9 million decrease in enterprise license and maintenance revenue.
  • The $0.4 million decline in total quarter-over-quarter net revenues from Q4 ’14 consisted of a $0.3 million decrease in OEM software bundling revenue and a $0.1 million decrease in enterprise license and maintenance revenue.
  • Q1 ’15 total operating expenses declined to $7.2 million versus $8.6 million in Q1 ’14.  Q4 ’14 total operating expenses were $7.2 million.  Beginning in the quarter ended June 30, 2014, Wave further enhanced the ongoing monitoring of operating expenses and has held the level of spending relatively consistent since that time.
  • Wave’s Q1 ’15 net loss was $4.9 million, or ($0.10) per basic share, compared to a net loss of $3.3 million, or ($0.09) per basic share in Q1 ’14, and a net loss of $3.7 million, or ($0.08) per basic share, in Q4 ’14.

Working Capital & Other

  • Cash and cash equivalents were $3.2 million at March 31, 2015, compared to $1.8 million at December 31, 2014. Wave’s total current assets were $4.9 million at March 31, 2015, and total current liabilities were $9.6 million, including $5.5 million in short-term deferred revenue. At December 31, 2014, the short-term portion of deferred revenue was $5.1 million. 
  • In addition to the increase in short-term deferred revenue highlighted above, long-term deferred revenue increased to $2.4 million at March 31, 2015 from $0.9 million at December 31, 2014.  The increase is attributable to the increase in enterprise billings during Q1 ’15.
  • On January 26, 2015, Wave received net proceeds of $3.3 million through a registered direct placement of common stock priced at $0.65 per share and warrants priced at $0.70 per share.

Wave President and CEO Bill Solms commented, “Our refocused and reinvigorated sales and marketing effort yielded its first major win during Q1 with the signing of a $2.3 million multi-year license with a major US insurance company.  At over 250,000 licenses for each of our Wave Protector and Wave Reporter data loss prevention products, this is Wave’s largest order ever in terms of licenses. The agreement also demonstrates that our strategic shift in focus to large enterprise customers is starting to gain traction.

“Our Q1 results show the continued transition of our business from one that was reliant on royalties from bundling our software client with OEM computing devices to a focus on selling our client/server-based solutions to large enterprise customers, both directly and through our partner channel. We are optimistic about our current sales outlook and the prospects for converting our pipeline of growing customer interest and opportunities into meaningful enterprise sales. We believe that the increase in Q1 total billings was not a one-time event but represents the beginning of expanding enterprise licensing and maintenance contract activity at Wave.

“Wave also extended its global reach, particularly in Asia, executing a memorandum of understanding with Nationz Technologies in the first quarter to jointly promote Trusted Platform Module (TPM) 2.0 solutions worldwide. Wave is the first TPM software vendor to partner with Nationz, the leading TPM vendor in China, and we expect to see benefits of this joint effort materialize in the later part of this year.

“Finally, from a corporate governance standpoint, Wave completed several initiatives. We named an accomplished technology CFO, executive and corporate advisor, R. Stephen Cheheyl, to our Board, filling the seat vacated by the passing of John Bagalay, Jr.  Additionally, in response to shareholder requests, we enhanced our Board election methodologies by initiating majority-voting for the Board of Directors instead of plurality voting.  The Board of Directors also developed new compensation and stock ownership policies for its members.  Please refer to the Proxy statement that was filed today for more information.

“In summary, we continue to believe that Wave possesses the technology, solutions, people, prospects and strategic plan to be successful, and the market need for stronger and more cost effective security solutions continues to grow.  For these reasons we remain optimistic regarding our prospects and are laser focused on delivering further improved sales and financial performance.”

For more information please contact:

Wave Contact:
Wave Systems Corp.
Walter A. Shephard, CFO
413-243-1600
investors@wave.com

 

Investor Relations:
David Collins, Chris Eddy
Catalyst Global LLC
212-924-9800 office
wavx@catalyst-ir.com

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

 

 

Three months ended

 

March 31, 2015

 

March 31, 2014

Net revenues:

 

 

 

Licensing and maintenance

$

2,452,535

 

 

$

5,332,539

 

Total net revenues

2,452,535

 

 

5,332,539

 

 

 

 

 

Operating expenses:

 

 

 

Licensing and maintenance – cost of net revenues

444,794

 

 

312,828

 

Selling, general, and administrative

4,301,674

 

 

5,201,968

 

Research and development

2,499,046

 

 

3,064,673

 

Total operating expenses

7,245,514

 

 

8,579,469

 

 

 

 

 

Operating loss

(4,792,979

)

 

(3,246,930

)

 

 

 

 

Other income (expense), net:

 

 

 

Net currency transaction loss

(50,095

)

 

(1,711

)

Net interest expense

(60,938

)

 

(44,864

)

 

 

 

 

Total other income (expense), net

(111,033

)

 

(46,575

)

Net loss

$

(4,904,012

)

 

$

(3,293,505

)

 

 

 

 

Loss per common share – basic and diluted

$

(0.10

)

 

$

(0.09

)

 

 

 

 

Weighted average number of common shares outstanding during the period

49,943,967

 

 

38,486,897

 

 

 

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

 

 

Three months ended

 

March 31, 2015

 

March 31, 2014

 

 

 

 

Total net revenues

$

2,452,534

 

 

$

5,332,539

 

Increase (decrease) in deferred revenue

1,923,140

 

 

(426,699

)

 

 

 

 

Total billings (Non-GAAP)

$

4,375,674

 

 

$

4,905,840

 

 

 

 

 

 

 

 

 

Net loss as reported

$

(4,904,012

)

 

$

(3,293,505

)

Net interest expense

60,938

 

 

44,864

 

Depreciation and amortization

205,752

 

 

236,648

 

Share-based compensation expense

109,248

 

 

414,283

 

 

 

 

 

EBITDAS (Non-GAAP)

$

(4,528,074

)

 

$

(2,597,710

)

 

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 sales.  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 December 31, 2014, total billings were $2,923,842 and consisted of total net revenues of $2,866,371 adjusted for an increase in deferred revenue of $57,471.

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 December 31, 2014, negative EBITDAS was $(2,954,972) and consisted of net loss as reported of $(3,685,704) adjusted for net interest expense of $604,325, depreciation and amortization of $208,340, share-based compensation expense of $(93,933) and income tax expense of $12,000.

 

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)

 

March 31,

2015

 

December 31,

2014

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

3,156,809

 

 

$

1,777,414

 

Accounts receivable, net of allowance for doubtful accounts of $-0- March 31, 2015 and December 31, 2014

1,231,062

 

 

1,820,945

 

Prepaid expenses and other current assets

497,370

 

 

397,689

 

Total current assets

4,885,241

 

 

3,996,048

 

Property and equipment, net

386,109

 

 

411,755

 

Amortizable intangible assets, net

1,862,553

 

 

2,008,227

 

Goodwill

1,448,000

 

 

1,448,000

 

Other assets

165,989

 

 

169,330

 

Total Assets

8,747,892

 

 

8,033,360

 

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

4,088,031

 

 

3,918,493

 

Deferred revenue

5,533,972

 

 

5,125,932

 

Total current liabilities

9,622,003

 

 

9,044,425

 

Other long-term liabilities

41,066

 

 

50,779

 

Royalty liability

5,026,486

 

 

4,982,306

 

Long-term deferred revenue

2,430,458

 

 

871,677

 

Total liabilities

17,120,013

 

 

14,949,187

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

Common stock, $.01 par value.  Authorized 150,000,000 shares as Class A; 51,475,368 shares issued and outstanding at March 31, 2015 and 45,962,324 at December 31, 2014

514,754

 

 

459,623

 

Common stock, $.01 par value.  Authorized 13,000,000 shares as Class B; 8,885 shares issued and outstanding at March 31, 2015 and December 31, 2014

89

 

 

89

 

Capital in excess of par value

426,138,126

 

 

422,745,539

 

Accumulated deficit

(435,025,090

)

 

(430,121,078

)

Total Stockholders' Deficit

(8,372,121

)

 

(6,915,827

)

Total Liabilities and Stockholders’ Deficit

$

8,747,892

 

 

$

8,033,360