Conference Call:
Webcast / Replay URL:
Dial-in numbers:
Thursday, August 13, 2015 at 4:30 P.M. EDT
http://edge.media-server.com/m/p/e43ysp2e
(800) 734-8507
Lee, MA
August 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.”

 

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

 

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