Lee, MA
August 7, 2014

Wave Systems Corp. (NASDAQ: WAVX), an enterprise security software provider, today reported second quarter (Q2 ‘14) results for the period ended June 30, 2014. Wave will host a live webcast http://www.media-server.com/m/p/qtc3ctqk and conference call (415-226-5357 or 212-231-2920) today at 4:30 p.m. ET to review its Q2 results and progress to date in 2014.

Q2 Financial Highlights

  • Wave’s total net revenues for Q2 ’14 declined to $4.4 million versus $6.7 million in Q2 ’13 and $5.3 million in Q1 ’14.  The decline in total net revenues from Q2’13 included a decrease in licensing and maintenance net revenues of $1.7 million – consisting primarily of a $1.2 million decrease in OEM software bundling revenue, resulting from a decline in shipments of Wave’s solutions under its OEM bundling relationship with Dell that has been continuing since Dell began to launch next generation platforms without Wave’s solutions in 2013, and a $0.6 million decline in consulting revenue from one of the world’s leading international oil and gas companies.  Services net revenues also decreased by $0.6 million from Q2 ’13 as a result of a services contract with the United States Department of Defense that was completed during 2013.  The decline in total net revenues from Q1’14 consisted of a decrease in licensing and maintenance net revenues of $0.9 million consisting primarily of a quarter-over-quarter decrease in OEM software bundling revenue as described above.
     
  • Reflecting management’s ongoing cost reduction initiatives, Q2 ‘14 combined SG&A and R&D expenses declined to $7.9 million versus $9.6 million in Q2 ’13. Excluding a $0.6 million Q2 ’13 credit to R&D related to the completion of an OEM-funded software development agreement, Wave’s Q2 ‘13 SG&A and R&D expenses would have been $10.2 million.  Q1 ’14 SG&A and R&D expenses were $8.3 million, including $0.4 million in severance expense that was non-recurring in Q2 ’14.
     
  • Wave’s Q2 ‘14 net loss was $3.8 million, or ($0.09) per basic share, compared to a net loss of $3.5 million, or ($0.12) per basic share in Q2 ’13, and a net loss of $3.3 million, or ($0.09) per basic share, in Q1 ‘14.
     
  • Q2 ‘14 total billings declined to $3.6 million versus Q2 ‘13 total billings of $5.9 million and Q1 ’14 total billings of $4.9 million. The year-over-year decline was due to a $0.6 million decrease in licensing and maintenance billings, the absence of services billings versus $0.6 million in Q2 ’13 and a $1.0 million decrease in OEM billings, principally due to a decrease in Dell-related OEM bundling activity.

Working Capital

  • During Q2 ‘14, Wave received net proceeds of $9.1 million through a registered direct placement of common stock and warrants, priced at $1.90 per common share. Following the transaction, Wave’s At-The-Market financing facility was terminated.
     
  • Reflecting the financing activity, cash and cash equivalents rose to $8.5 million at June 30, 2014 compared to $2.1 million at December 31, 2013 and $0.9 million at June 30, 2013. Wave’s total current assets were $11.0 million at June 30, 2014 and total current liabilities were $10.6 million, including $6.3 million in deferred revenue.

CEO Commentary:

“I am never satisfied with reporting a loss or a quarterly drop in sales, however these results for Q2 do not derail Wave’s previously discussed plan or its timing to turn around this company’s financial performance. The changes that we have made are still on track to begin having a positive impact in the coming quarters,” said Wave CEO Bill Solms.

“As I have stated over the past several months, our objectives won’t be accomplished in a single quarter or two. We expect greater traction from our new sales strategy and new product launches. To accomplish this, we have overhauled the bulk of our sales team and have attracted an impressive group of experienced and driven industry veterans who understand what needs to be done to achieve our sales targets. Such changes are time consuming and disruptive in the short term, but are critical in building the groundwork to deliver the stronger, long term results.

“During Q2 we debuted several important new OEM relationships, including a development collaboration with Micron Technology, a license agreement with WidePoint Corporation and a bundling agreement with SanDisk with their self-encrypting solid state drive line, the SanDisk X300s SSD™.

“Importantly, last month we launched a substantially enhanced, second generation version of our Wave Virtual Smart Card solution. Wave Virtual Smart Card 2.0 offers stronger authentication at significantly less cost than traditional two-factor authentication options such as smart cards and tokens. We are seeing strong customer and IT press response to this new product and we remain very optimistic about its ability to generate significant sales. While there is still substantial work in front of us, we are now in a far stronger position to convert Wave’s tremendous portfolio of security software technology and expertise into improving business performance.”

Recent Corporate Developments:

For more information please contact:

Wave Systems Corp.
Walter A. Shephard, CFO                         (212) 924-9800
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

 

Six months ended

 

June 30, 2014

 

June 30, 2013

 

June 30, 2014

 

June 30, 2013(1)

Net revenues:

 

 

 

 

 

 

 

    Licensing and maintenance

$4,439,820   

 

$6,133,304   

 

$9,772,359  

 

$11,127,030  

    Services

-

 

608,938

 

-

 

1,408,938

Total net revenues

4,439,820

 

6,742,242

 

9,772,359

 

12,535,968

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Licensing and maintenance – cost of net revenues

338,519

 

474,311

 

651,347

 

2,699,910

Services – cost of net revenues

-

 

105,155

 

-

 

212,516

   Selling, general, and administrative

5,381,167

 

6,682,719

 

10,583,135

 

13,861,722

   Research and development

2,474,413

 

2,912,128

 

5,539,086

 

6,761,110

   Impairment of goodwill

-

 

-

 

-

 

2,590,000

   Total operating expenses

8,194,099

 

10,174,313

 

16,773,568

 

26,125,258

   Operating loss

(3,754,279)

 

(3,432,071)

 

(7,001,209)

 

(13,589,290)

Other income (expense), net:

 

 

 

 

 

 

 

   Net currency transaction gain (loss)

(2,238)

 

(8,363)

 

(3,949)

 

(6,732)

   Net interest expense

(39,013)

 

(49,863)

 

           (83,877)

 

          (108,030)

   Total other income (expense), net

(41,251)

 

(58,226)

 

(87,826)

 

(114,762)

Net loss

$(3,795,530)

 

$(3,490,297)

 

$(7,089,035)

 

$(13,704,052)

 

 

 

 

 

 

 

 

Loss per common share – basic and diluted

$(0.09)       

 

$(0.12)       

 

 $(0.18)        

 

 $(0.50)        

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period

41,684,076

 

28,317,577

 

40,094,319

 

27,326,711

 

 

 

 

 

 

 

 

 

  1. June 30, 2013 six months ended results reflect 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.

 

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

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

 

2014

 

2013

 

2014

 

2013

               

Total net revenues

$4,439,820

 

$6,742,242

 

$9,772,359

 

$12,535,968

Increase (decrease) in deferred revenue

(814,911)

 

(801,964)

 

 (1,241,611)

 

(704,575)

 

 

 

 

 

 

 

 

Total billings (Non-GAAP)

$3,624,909

 

$5,940,278

 

$8,530,748

 

$11,831,393

 

 

Net loss as reported

$(3,795,530)

 

$(3,490,297)

 

$(7,089,035)

 

$(13,704,052)

Net interest expense

39,013

 

49,863

 

83,877

 

108,030

Depreciation and amortization

225,251

 

231,359

 

461,899

 

547,268

Stock-based compensation expense

437,561

 

668,840

 

851,844

 

1,106,546

Impairment of goodwill and amortizable intangible assets

-

 

-

 

-

 

4,205,000

 

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$(3,093,705)

 

$(2,540,235)

 

$(5,691,415)

 

$(7,737,208)

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.   For the three months ended March 31, 2014, total billings were $4,905,840 and consisted of total net revenues of $5,332,539 adjusted for a decrease in deferred revenue of $426,699.

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.  For the three months ended March 31, 2014, negative EBITDAS was $(2,597,710) and consisted of net loss as reported of $(3,293,505) adjusted for net interest expense of $44,864, depreciation and amortization of $236,648 and stock-based compensation expense of $414,283.

 

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

 

 

 

June 30,

 

December 31,

 

2014

 

2013

Assets

 

 

 

Current assets:

 

 

 

  Cash and cash equivalents

$8,524,138

 

$2,120,102

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

 

 

 

       June 30, 2014 and December 31, 2013

2,076,696

 

2,730,077

  Pledged receivables

-

 

1,683,188

  Prepaid expenses and other current assets

407,754

 

488,656

      Total current assets

11,008,588

 

7,022,023

  Property and equipment, net

491,030

 

596,820

  Amortizable intangible assets, net

2,299,573

 

2,590,920

  Goodwill

1,448,000

 

1,448,000

  Other assets

122,519

 

167,146

Total Assets

15,369,710

 

11,824,909

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

  Secured borrowings

-

 

1,430,710

  Accounts payable and accrued expenses

4,259,732

 

6,789,274

  Deferred revenue

6,317,784

 

6,996,239

      Total current liabilities

10,577,516

 

15,216,223

  Other long-term liabilities

60,812

 

78,618

  Royalty liability

4,458,368

 

4,509,629

  Long-term deferred revenue

814,234

 

1,003,614

Total liabilities

15,910,930

 

20,808,084

 

 

 

 

Stockholders’ Deficit:

 

 

 

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

 45,895,118 shares issued and outstanding at June 30, 2014 and 35,019,740 at December 31, 2013

458,951

 

350,197

Common stock, $.01 par value.  Authorized 13,000,000 shares as Class B; 8,885 shares issued and outstanding at June 30, 2014 and December 31, 2013

89

 

89

Capital in excess of par value

423,329,255

 

407,907,019

Accumulated deficit

(424,329,515)

 

(417,240,480)

Total Stockholders' Deficit

(541,220)

 

 (8,983,175)

Total Liabilities and Stockholders’ Deficit

$15,369,710

 

$11,824,909