Shareholder.com
 
Conference Call:
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Thursday, August 9, 2012 at 4:30 P.M. ET
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415-226-5361 or 212-231-2915

 

Lee, MA
August 9, 2012

Wave Systems Corp. (NASDAQ: WAVX -- www.wave.com), today reported financial results for its second quarter (Q2) ended June 30, 2012 and highlighted recent progress in the expansion of its PC & mobile OEM distribution relationships.

“Wave has had a productive yet challenging first half of 2012,” said Wave CEO Steven Sprague. “Enthusiasm remains strong for the benefits of trusted computing technology within important industry sectors. However, converting interest into steady sales growth remains one of our biggest challenges. Q2 revenues were slightly better than those in the first quarter of this year, but were not as strong compared to Q2 ‘11, which benefitted from revenue recognized from two large enterprise orders. Expenses have also increased as a result of the substantial investment Wave has made to grow its sales infrastructure throughout Europe, expand its sales force in the US and consolidate the personnel and resources from the Q3 ’11 acquisition of Safend.

“Wave’s disclosures over the past several months demonstrate the progress we have made in expanding the reach of our distribution channel. Our channel partners are on the front lines learning about the threats that many end-customers face and are seeking to address, including lost laptops, employee credentials being phished and corporate network vulnerabilities. Wave is very focused on supporting the channel to educate enterprises on how Trusted Computing technology can mitigate these threats at a competitive total cost of ownership. Ultimately, we believe our OEM channel partners serve as the foundation for our efforts to expand our Wave sales globally.

“In this vein, we were proud to announce a worldwide distribution agreement with Lenovo, the world’s second largest PC manufacturer. Lenovo has tested and approved Wave’s client and server software and is now able to promote and sell our solutions to enterprises and governments around the world. Also of significance was our license agreement with Samsung which permits the distribution of our EMBASSY Security Center and middleware on devices that include a Trusted Platform Module (TPM) security chip, for which Wave will receive a per unit royalty. In addition, Wave secured an approved vendor arrangement with NATO, enabling NATO’s 28 member countries, including the United States European Command, to access our security portfolio.

“I am also pleased to report that we are realizing benefits from our investment in Safend. During the second quarter we completed the integration of Safend’s products, staff and operations into Wave. The Safend portfolio is a robust addition to our product suite and extends security capabilities into future Cloud-based services. Safend’s performance has been in-line with our expectations so far this year, and we are working toward continued improvements in the subsidiary’s sales contributions.

“Finally, our continued investments in research and development will yield a series of new product enhancements and offerings that will be announced in the next few months. We believe these innovations will further improve our competitive position by addressing new security threats and trends such as Bring Your Own Device (BYOD) and Cloud services that are shaping the way business is conducted.”

Recent Developments:

Financial Review
In Q2 ‘12, Wave reported total net revenues of $7.8 million, including $0.4 million in services revenues and $1.6 million in licensing revenues from its Safend subsidiary. Wave’s Q2 ’12 performance represents an 11% increase over Q1 ’12 total net revenues of $7.0 million, but a 4% decline from total net revenues of $8.1 million in Q2 ‘11.

Year-ago second quarter revenues benefitted from two “large” enterprise-customer licenses that were recorded ratably during 2011 and amounted to an additional $2 million in the period compared to Q2 ’12 or Q1 ’12. Total billings were $6.9 million in Q2 ‘12, a 27% decline from the $9.4 million total in Q2 ’11 which included a $3.5 million enterprise order from BASF. Total billings for Q2 ’12 and Q1 ’12 included $1.4 million and $1.8 million, respectively, from Safend, versus no contribution in Q2 ’11. Q2 ’12 billings also reflect approximately $0.4 million in professional services billed on a time and materials basis during the quarter.

Wave’s Q2 ‘12 combined SG&A and R&D expenses decreased by roughly $1.1 million to $13.7 million from Q1 ’12, but rose $3.9 million over Q2 ’11. The year-over year increase in SG&A and R&D expenses reflects an increase of approximately 60 new team members resulting from the Safend acquisition, as well as expanded staffing in engineering, sales & marketing and administration. The increased staffing & expenses support the development of new products and product features for the PC and mobile device markets. Additionally, higher overhead reflects increased sales and marketing and administrative staffing and programs required to support the geographical expansion of Wave’s marketing efforts and the support of an expanding base of OEM partners. The decrease in SG&A and R&D expenses versus Q1’ 12 reflects a variety of factors including lower professional services fees and lower salary and related expense from a modest decrease in employee headcount. Principally as a result of the Safend acquisition in Q3 ‘11, depreciation and amortization expense rose to $0.5 million in Q2 ’12 versus $0.1 million in Q2 ’11 and $0.5 million in Q1 ’12.

Wave recorded a Q2 ‘12 net loss of $6.5 million, or $0.07 per basic and diluted share, as compared to a Q2 ‘11 net loss of $1.8 million, or $0.02 per basic and diluted share, and a Q1 ‘12 net loss of $8.3 million, or $0.09 per basic and diluted share. Per share figures are based on a weighted average number of basic shares outstanding during Q2 ‘12, Q2 ‘11 and Q1’12 of 92.5 million, 82.9 million and 90.2 million, respectively.

As of June 30, 2012, Wave’s total current assets were $6.9 million and total current liabilities, including the current portion of deferred revenue of $5.1 million, were $13.9 million. Cash and cash equivalents were $1.6 million at June 30, 2012, as compared to $2.3 million at March 31, 2012. Wave continues to utilize a variety of approaches to fund its working capital needs. In addition to its At The Market Issuance (ATM) structure and active working capital management methods, Wave has also established a receivables financing relationship that enables it to more readily monetize its largest receivables.

During the second quarter and to date in Q3 ’12, Wave has raised net proceeds of approximately $3.8 million through the issuance of approximately 4.1 million shares of its Class A common stock at an average price of $0.97 per share through its At The Market Issuance (ATM) structure; share sales to date in Q3 ’12 represent approximately $1.0 million of the net proceeds. Since inception of the ATM in January 2012, Wave has raised total net proceeds of $6.4 million through the issuance of 5.2 million shares of Class A common stock at an average price of $1.23 per share. The share sales are completed at market prices, with a 3% commission and without any warrant issuance. 

Additionally, Wave announced earlier today that it has agreed to raise an additional $1.66 million through the sale of Class A common stock pursuant to its effective shelf registration statement.

 

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

 

Three months ended

 

Six months ended

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

Net revenues:

 

 

 

 

 

 

 

    Licensing

$7,361,102

 

$8,094,126

 

$14,019,369

 

$15,358,245

    Services

400,372

 

-

 

724,242

 

212,117

Total net revenues

7,761,474

 

8,094,126

 

14,743,611

 

15,570,362

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

   Licensing – cost of net revenues

458,237

 

382,060

 

921,867

 

680,941

Services – cost of net revenues

74,760

 

-

 

136,590

 

74,047

   Selling, general, and administrative

8,624,691

 

6,222,036

 

18,398,474

 

12,282,943

   Research and development

5,050,625

 

3,548,726

 

10,068,104

 

6,847,513

   Total operating expenses

14,208,313

 

10,152,822

 

29,525,035

 

19,885,444

   Operating loss

(6,446,839)

 

(2,058,696)

 

(14,781,424)

 

(4,315,082)

Other income (expense):

 

 

 

 

 

 

 

   Net currency transaction gain (loss)

(13,812)

 

231,368

 

9,788

 

231,368

   Net interest expense

(60,504)

 

(753)

 

           (62,609)

 

           (2,054)

   Total other income (expense)

(74,316)

 

230,615

 

(52,821)

 

229,314

Net loss

$(6,521,155)

 

$(1,828,081)

 

$(14,834,245)

 

$(4,085,768)

 

 

 

 

 

 

 

 

Loss per common share – basic and diluted

$(0.07)       

 

$(0.02)       

 

 $(0.16)        

 

 $(0.05)        

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period

92,483,493

 

82,939,649

 

91,358,548

 

82,547,321

 

 

 

 

 

 

 

 

 

 

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

 

Three months ended

 

Six months ended

 

June 30, 2012

 

June 30, 2011

 

June 30, 2012

 

June 30, 2011

Total net revenues

$7,761,474

 

$8,094,126

 

$14,743,611

 

$15,570,362

Increase (decrease) in deferred revenue

(820,021)

 

1,258,300

 

 (895,599)

 

(640,559)

 

 

 

 

 

 

 

 

Total billings (Non-GAAP)

$6,941,453

 

$9,352,426

 

$13,848,012

 

$14,929,803

Net loss as reported

$(6,521,155)

 

$(1,828,081)

 

$(14,834,245)

 

$(4,085,768)

Net interest expense

60,504

 

753

 

62,609

 

2,054

Depreciation and amortization

545,731

 

137,053

 

1,072,520

 

260,861

Stock-based compensation expense

1,288,326

 

1,389,622

 

2,644,078

 

2,583,505

 

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$(4,626,594)

 

$(300,653)

 

$(11,055,038)

 

$(1,239,348)

 

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.

 

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

 

 

 

June 30,

 

December 31,

 

2012

 

2011

Assets

 

 

 

Current assets:

 

 

 

  Cash and cash equivalents

$1,570,573

 

$3,385,035

  Accounts receivable, net of allowance for doubtful accounts of $-0-

 

 

 

       June 30, 2012 and December 31, 2011

3,521,934

 

7,198,645

  Pledged receivables

1,009,430

 

-

  Prepaid expenses

758,306

 

823,761

      Total current assets

6,860,243

 

11,407,441

  Property and equipment, net

1,076,726

 

1,236,844

  Amortizable intangible assets, net

10,116,206

 

10,925,306

  Goodwill

6,216,059

 

6,216,059

  Other assets

327,010

 

336,607

Total Assets

24,596,244

 

30,122,257

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

Current liabilities:

 

 

 

  Secured borrowings

852,948

 

-

  Accounts payable and accrued expenses

7,785,449

 

6,701,026

  Current portion of capital lease payable

74,883

 

72,074

  Deferred revenue

5,146,640

 

6,619,257

      Total current liabilities

13,859,920

 

13,392,357

  Long-term portion of capital lease payable

6,502

 

44,659

  Other long-term liabilities

96,324

 

66,283

  Royalty liability

4,121,397

 

4,043,163

  Long-term deferred revenue

1,185,587

 

1,035,220

Total liabilities

19,269,730

 

18,581,682

 

 

 

 

Stockholders’ Equity:

 

 

 

Common stock, $.01 par value.  Authorized 150,000,000 shares as Class A; 
 94,371,623 shares issued and outstanding in 2012 and 89,574,385 in 2011

943,716

 

895,744

Common stock, $.01 par value.  Authorized 13,000,000 shares as Class B; 35,556 shares issued and outstanding in 2012 and 2011

355

 

355

Capital in excess of par value

382,170,356

 

373,598,144

Accumulated deficit

(377,787,913)

 

(362,953,668)

Total Stockholders' Equity

5,326,514

 

11,540,575

Total Liabilities and Stockholders’ Equity

$24,596,244

 

$30,122,257

 

For more information please contact:

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

Investor Relations:
David Collins, Eric Lentini
Catalyst Global LLC
212-924-9800 office / 917-734-0339 mobile
wavx@catalyst-ir.com