Lee, MA
May 8, 2014

Wave Systems Corp. (NASDAQ: WAVX), an enterprise security software provider, today reported first quarter (Q1 ‘14) results for the period ended March 31, 2014. Wave will host a live webcast http://www.media-server.com/m/p/cz93i98z and conference call (415-226-5357 or 212-231-2930) today at 4:30 p.m. ET to review its Q1 results and progress to date in 2014.

Q1 Financial Highlights

  • Wave’s Q1 ‘14 net loss was $3.3 million, or ($0.09) per basic share, compared to a net loss of $10.2 million, or ($0.39) per basic share in Q1 ’13. The Q1 ‘14 net loss included one-time severance expenses of $0.4 million related to Wave’s former CFO while the Q1 ‘13 net loss included $4.2 million in non-cash impairment charges. The Q1 ‘13 net loss per basic share has been adjusted for a 1-for-4 reverse stock split effective July 1, 2013.
  • Q1 ‘14 combined SG&A and R&D expenses declined by 25% to $8.3 million versus Q1 ‘13 as a result of management’s ongoing cost reduction initiatives. Excluding the severance expenses noted above, Wave’s Q1 ‘14 SG&A and R&D expenses would have decreased by 29% as compared to Q1 ’13.
  • Licensing and maintenance net revenues rose 7% in Q1 ’14 to $5.3 million compared to $5.0 million in Q1 ’13. The increase in licensing and maintenance revenue was due primarily to an increase in revenue recognized on Wave’s license upgrade sales. Services revenue decreased by $0.8 million as this amount earned during Q1 ‘13 was related to a contract with the United States Department of Defense that was completed during 2013.
  • Q1 ‘14 total billings declined 17% to $4.9 million vs. Q1 ‘13 total billings of $5.9 million. This was due primarily to a decrease in services billings of $0.8 million and a decrease in OEM billings of $0.4 million offset by an increase in licensing and maintenance billings of $0.2 million. The decrease in OEM billings consisted primarily of a decrease in Dell-related OEM bundling billings due to a continued decline in total units shipped. 

Working Capital and Fundraising

  • At March 31, 2014, Wave’s total current assets were $8.0 million, while total current liabilities were $13.6 million, including $6.9 million in deferred revenue. Cash and cash equivalents rose to $4.3 million at March 31, 2014 compared to $2.1 million at December 31, 2013 and $1.8 million at March 31, 2013.
  • During Q1 ‘14 Wave sold 5.4 million common shares at an average price of $1.02 per share, for net proceeds of $5.3 million, through its At-The-Market (ATM) share sale facility. Subsequent to March 31, 2014 Wave has not raised any additional capital through the ATM facility but will continue to evaluate its financing needs.

CEO Commentary:

“The first quarter of 2014 saw modest but welcome increases in software license billings and revenues over Q1 2013. Combined with significant reductions in our operating expenses from a year ago, the execution of multiple new licensing and marketing agreements with partners that are leading to new revenue streams and the replacement of several key members of the Wave management team, Wave is now showing visible signs of progress in implementing our strategic transition plan. As I said during our last quarterly call, our objectives won’t be accomplished in a single quarter or two— this will be a longer-term proposition – but I believe we are on track to achieve our goals,” said Wave CEO Bill Solms.

“One of the more significant developments came with the addition of a new CFO, the promotion of one of our executives to head up our APAC business and global business development, along with key additions to the North American sales team. We also strengthened our board with the addition of Lorraine Hariton and David Côté, each with first-rate credentials, relevant experience and fresh new perspective.

“I am encouraged by the progress we are making with our OEM partners, including our development activities with Micron and our joint efforts to develop solutions to protect IP-connected embedded devices from malware and our expanded development partnership with Samsung. In January we announced our support for Samsung’s new line of flash self-encrypting drives, followed by news of the first shipments of the new Samsung Trusted Platform Module security chips that include Wave’s management software – the culmination of several years of development work.

“On the sales side, we’re introducing a growing number of prospects to our Virtual Smart Card solution, one that we believe offers significant cost and implementation advantages over external security tokens that command a significant market today. We also received positive responses at marquee events such as the RSA Conference in February and the Gartner Identity and Access Management Conference held in London during March.

“There is substantial work in front of us. But we are making progress in building a solid foundation for future quarters, and we are working toward our objective of improving our operating results as we progress throughout the rest of the year.”

Recent Corporate Developments:

For more information please contact:

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

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

 

 

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

 

Three Months Ended

March 31,

 

2014

 

2013 (1)

Net revenues:

 

 

 

    Licensing and maintenance

$5,332,539

 

$4,993,726

    Services

-

 

800,000

Total net revenues

5,332,539

 

5,793,726

Operating expenses:

 

 

 

   Licensing and maintenance - cost of net revenues

312,828

 

2,225,599

   Services - cost of net revenues

-

 

107,361

   Selling, general and administrative

5,201,968

 

7,179,003

   Research and development

3,064,673

 

3,848,982

   Impairment of goodwill and 

      intangible assets

                    -

 

 

2,590,000

Total operating expenses

8,579,469

 

15,950,945

Operating loss

(3,246,930)

 

(10,157,219)

Other income (expense):

 

 

 

Net currency transaction (loss) gain

(1,711)

 

1,631

Net interest expense

 (44,864)

 

(58,167)

Total other income (expense), net

(46,575)

 

     (56,536)

Net loss

$(3,293,505)

 

$(10,213,755)

 

Loss per common share – basic and diluted (2)

($0.09)

 

            ($0.39)

Weighted average number of common shares outstanding (2)

38,486,897

 

26,347,688

 

 

 

 

  1. Year-ago Q1 period reflects non-cash impairment charges totaling $4.2M for the write down of goodwill and intangible assets attributed to Wave’s Safend subsidiary, of which $1.6M is included in licensing and maintenance - cost of net revenues and $2.6M is reflected as an impairment of goodwill and intangible assets.
     
  2. All shares and per share data presented in these consolidated financial statements have been retroactively adjusted to reflect the 1-for- 4 reverse stock split.

 

 

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

 

Three Months Ended
March 31,

 

 

2014

 

2013

 

Total net revenues

$5,332,539

 

$5,793,726

 

Increase (decrease) in deferred revenue

(426,699)

 

97,388

 

 

 

 

 

 

Total billings (Non-GAAP)

$4,905,840

 

$5,891,114

 

 

 

 

 

 

 

 

 

 

 

Net loss as reported

$(3,293,505)

 

$(10,213,755)

 

Net interest expense

44,864

 

58,167

 

Income tax expense

-

 

-

 

Depreciation and amortization

236,648

 

315,909

 

Stock-based compensation expense

414,283

 

437,706

 

Impairment of goodwill and    intangible assets

-

 

4,205,000

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$(2,597,710)

 

$(5,196,973)

 

 

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 are 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 are 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, 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)

 

March 31,

 

December 31,

 

2014

 

2013

Assets

 

 

 

Current Assets:

 

 

 

  Cash and cash equivalents

$   4,343,604

 

$   2,120,102

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

 

 

 

       at March 31, 2014 and December 31, 2013, respectively

2,586,640

 

2,730,077

  Pledged receivables

526,765

 

1,683,188

  Prepaid expenses

482,451

 

488,656

      Total current assets

7,939,460

 

7,022,023

  Property and equipment, net

530,603

 

596,820

  Amortizable intangible assets, net

2,445,246

 

2,590,920

  Goodwill

1,448,000

 

1,448,000

 Other assets

168,281

 

167,146

Total Assets

12,531,590

 

11,824,909

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

Current Liabilities:

 

 

 

  Secured borrowings

447,750

 

1,430,710

  Accounts payable and accrued expenses

6,195,125

 

6,789,274

  Deferred revenue

6,944,706

 

6,996,239

      Total current liabilities

13,587,581

 

15,216,223

  Other long-term liabilities

66,838

 

78,618

  Royalty liability

4,434,043

 

4,509,629

  Long-term deferred revenue

981,808

 

1,003,614

Total Liabilities

19,070,270

 

20,808,084

 

 

 

 

Stockholders’ Deficit:

 

 

 

Common stock, $.01 par value.  Authorized 150,000,000 shares as Class A; 

 40,385,524 shares issued and outstanding at March 31, 2014 and 35,019,740 at December 31, 2013

403,855

 

350,197

Common stock, $.01 par value.  Authorized 13,000,000 shares as Class B; 8,885 shares issued and outstanding at March 31, 2014 and December 31, 2013

89

 

89

Capital in excess of par value

413,591,361

 

407,907,019

Accumulated deficit

(420,533,985)

 

(417,240,480)

Total Stockholders' Deficit

(6,538,680)

 

(8,983,175)

Total Liabilities and Stockholders’ Deficit

$  12,531,590

 

$  11,824,909

 

All shares and per share data presented in these consolidated financial statements have been retroactively adjusted to reflect the 1-for-4 reverse stock split.

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