Lee, MA
November 6, 2014

Wave Systems Corp. (NASDAQ: WAVX), an enterprise security software provider, today reported third quarter (Q3 ‘14) results for the period ended September 30, 2014. Wave will host a live webcast http://www.wave.com/resource-center/webcasts and conference call (212-231-2902) today at 4:30 p.m. ET to review its Q3 results and progress to date in 2014.

Q3 Financial Highlights

  • Wave’s total net revenues for Q3 ’14 declined to $4.3 million versus $6.3 million in Q3 ’13 and $4.4 million in Q2 ’14.  The decline in total net revenues from Q3’13 included a decrease in licensing and maintenance net revenues of $1.8 million – consisting of:
     
  • a $1.4 million 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 $0.4 million decline in consulting revenue from one of the world’s leading international oil and gas companies. 
     
  • The decline in total net revenues from Q2’14 consisted of:
     
  •  a decrease in licensing and maintenance net revenues of $0.4 million, consisting primarily of a quarter-over-quarter decrease in OEM software bundling revenue as described above and
     
  • an increase of $0.3 million in revenue earned during Q3 ’14 from a service contract with an OEM partner.
     
  • Q3 ‘14 total operating expenses declined to $6.4 million versus $9.1 million in Q3 ’13.  Q2 ’14 total operating expenses were $8.2 million.
     
  • Wave’s Q3 ‘14 net loss narrowed to $2.1 million, or ($0.05) per basic share, compared to a net loss of $2.9 million, or ($0.09) per basic share in Q3 ’13, and a net loss of $3.8 million, or ($0.09) per basic share, in Q2 ‘14.
     
  • Q3 ‘14 total billings declined to $3.4 million versus Q3 ‘13 total billings of $7.1 million. Q2 ’14 total billings were $3.6 million. The year-over-year decline was due to a $2.2 million decrease in licensing and maintenance billings, the absence of current services billings versus $0.4 million in Q3 ’13, and a $1.1 million decrease in OEM billings, principally due to a decrease in Dell-related OEM bundling activity.
     

Working Capital

  • Cash and cash equivalents were $4.3 million at September 30, 2014 compared to $2.1 million at December 31, 2013 and $1.8 million at September 30, 2013. Wave’s total current assets were $6.7 million at September 30, 2014 and total current liabilities were $8.6 million, including $5.0 million in deferred revenue.
     
  • On October 15, 2014, Wave entered into an Asset Purchase Agreement with DocMagic, Inc. to sell eSignSystems, a product line of Wave, to DocMagic, Inc. for $1.2 million.  The transaction closed on October 16, 2014.

CEO Commentary:

“Our revenue and billings remained essentially flat compared to last quarter,” said Bill Solms, Wave’s President and CEO. We had hoped to see the first signs of increased billings from Wave’s revitalized products, sales and marketing efforts in late Q3, but based on the positive interest in Wave’s new Virtual Smart Card 2.0 and some of our legacy products, I stand by my previously stated goals.  To attain those goals, we will require strong sales execution in Q4 and continuing into 2015. Wave remains committed to improvement in our sales and marketing execution, and I am continuing to take appropriate steps toward that end.”

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, Chris Eddy
Catalyst Global LLC
212-924-9800 
wavx@catalyst-ir.com

 

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

 

Three months ended

 

Nine months ended

 

September 30, 2014

 

September 30, 2013

 

September 30, 2014

 

September 30, 2013

Net revenues:

 

 

 

 

 

 

 

    Licensing and maintenance

$4,032,104   

 

$5,851,325   

 

$13,804,463  

 

$16,978,355  

    Services

300,000

 

400,000

 

300,000

 

1,808,938

Total net revenues

4,332,104

 

6,251,325

 

14,104,463

 

18,787,293

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

   Licensing and maintenance – cost of net revenues

260,828

 

406,051

 

912,175

 

3,105,961

Services – cost of net revenues

73,000

 

65,149

 

73,000

 

277,665

   Selling, general, and administrative

4,006,625

 

6,181,802

 

14,589,760

 

20,043,524

   Research and development

2,069,272

 

2,493,354

 

7,608,358

 

9,254,464

   Impairment of goodwill

-

 

-

 

-

 

2,590,000

   Total operating expenses

6,409,725

 

9,146,356

 

23,183,293

 

35,271,614

   Operating loss

(2,077,621)

 

(2,895,031)

 

(9,078,830)

 

(16,484,321)

Other income (expense), net:

 

 

 

 

 

 

 

   Net currency transaction loss

(3,913)

 

(5,626)

 

(7,862)

 

(12,358)

   Net interest expense

(24,325)

 

(43,166)

 

(108,202)

 

(151,196)

   Total other income (expense), net

(28,238)

 

(48,792)

 

(116,064)

 

(163,554)

Net loss

$(2,105,859)

 

$(2,943,823)

 

$(9,194,894)

 

$(16,647,875)

 

 

 

 

 

 

 

 

Loss per common share – basic and diluted

$(0.05)       

 

$(0.09)       

 

 $(0.22)        

 

 $(0.58)        

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period

45,895,118

 

31,132,377

 

42,049,167

 

28,609,207

 

 

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

 

 

Three months ended

 

Nine months ended

 

September 30, 2014

 

September 30, 2013

 

September 30, 2014

 

September 30, 2013

               

Total net revenues

$4,332,104

 

$6,251,325

 

$14,104,463

 

$18,787,293

Increase (decrease) in deferred revenue

(958,831)

 

817,855

 

 (2,200,441)

 

   113,281

 

 

 

 

 

 

 

 

Total billings (Non-GAAP)

$3,373,273

 

$7,069,180

 

$11,904,022

 

$18,900,574

Net loss as reported

$(2,105,859)

 

$(2,943,823)

 

$(9,194,894)

 

$(16,647,875)

Net interest expense

24,325

 

43,166

 

108,202

 

151,196

Depreciation and amortization

215,418

 

216,571

 

677,317

 

763,840

Stock-based compensation expense

(547,950)

 

512,569

 

303,894

 

1,619,115

Impairment of goodwill and  amortizable intangible assets

-

 

-

 

-

 

4,205,000

 

 

 

 

 

 

 

 

EBITDAS (Non-GAAP)

$(2,414,066)

 

$(2,171,517)

 

$(8,105,481)

 

$(9,908,724)

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 June 30, 2014, total billings were $3,624,909 and consisted of total net revenues of $4,439,820 adjusted for a decrease in deferred revenue of $814,911.

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 June 30, 2014, negative EBITDAS was $(3,093,705) and consisted of net loss as reported of $(3,795,530) adjusted for net interest expense of $39,013, depreciation and amortization of $225,251 and stock-based compensation expense of $437,561.

 

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

 

 

 

September 30,

 

December 31,

 

2014

 

2013

Assets

 

 

 

Current assets:

 

 

 

  Cash and cash equivalents

$4,332,781

 

$2,120,102

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

 

 

 

       September 30, 2014 and December 31, 2013

1,960,558

 

2,730,077

  Pledged receivables

-

 

1,683,188

  Prepaid expenses and other current assets

433,366

 

488,656

      Total current assets

6,726,705

 

7,022,023

  Property and equipment, net

451,762

 

596,820

  Amortizable intangible assets, net

2,153,900

 

2,590,920

  Goodwill

1,448,000

 

1,448,000

  Other assets

172,909

 

167,146

Total Assets

10,953,276

 

11,824,909

 

 

 

 

Liabilities and Stockholders' Deficit

 

 

 

Current liabilities:

 

 

 

  Secured borrowings

-

 

1,430,710

  Accounts payable and accrued expenses

3,624,978

 

6,789,274

  Deferred revenue

5,022,767

 

6,996,239

      Total current liabilities

8,647,745

 

15,216,223

  Other long-term liabilities

57,136

 

78,618

  Royalty liability

4,388,981

 

4,509,629

  Long-term deferred revenue

1,054,443

 

1,003,614

Total liabilities

14,148,305

 

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 September 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 September 30, 2014 and December 31, 2013

89

 

89

Capital in excess of par value

422,781,305

 

407,907,019

Accumulated deficit

(426,435,374)

 

(417,240,480)

Total Stockholders' Deficit

(3,195,029)

 

 (8,983,175)

Total Liabilities and Stockholders’ Deficit

$10,953,276

 

$11,824,909