Wave Reports 2012 Results and Highlights Focus on Enterprise Management of Windows 8 Tablets

Wave Reports 2012 Results and Highlights Focus on Enterprise Management of 
Windows 8 Tablets 
LEE, MA -- (Marketwire) -- 03/18/13 --  Wave Systems Corp. (NASDAQ:
WAVX), a provider of security and management software for endpoint
devices, today reported financial results for its fourth quarter (Q4
'12) and year ended December 31, 2012 and highlighted recent
developments in its business. 
Wave generated total net revenues of $7.1 million for Q4 '12, a
modest increase over total net revenues of $7.0 million in Q3 '12,
but a decline from Q4 '11 total net revenues of $11.0 million, which
included $2.4 million in additional licensing and maintenance revenue
related to three enterprise customers. 
Wave's Q4 '12 and full year 2012 total net revenues reflect lower
levels of OEM bundling revenue resulting from a combination of lower
PC shipment volumes and a reduction in royalty rates established in
November 2011. Q4 '12 OEM bundling revenues decreased by $0.3 million
versus Q3 '12 and by $1.7 million versus Q4 '11. For the full year
2012, OEM bundling revenue declined a total of $4.8 million versus
Wave's Q4 '12 total net revenues included $1.4 million in licensing
and maintenance revenues from its Safend subsidiary versus $1.5
million in Q3 '12 and $1.6 million in Q4 '11. Services revenue from a
U.S. government consulting contract was $0.6 million for both Q4 '12
and Q4 '11 and $40,000 for Q3 '12. 
Total billings for Q4 '12 rose to $9.3 million, an increase of 52%
from $6.1 million in Q3 '12, but a decline of 20% from $11.5 million
in Q4 '11, which included $1.7 million related to a single large
customer contract. Q4 '12 total billings include $1.7 million in
maintenance fees for a large enterprise customer that will be
recorded ratably over the three-year maintenance term through
December 31, 2015. Q4 '12 total billings included $1.7 million from
Safend, as compared to $1.3 million in Q3 '12 and $1.8 million in Q4
As a result of headcount and cost reduction initiatives completed in
Q4, Wave's combined SG&A and R&D expenses declined to $11.7 million
in Q4 '12 from $12.4 million in Q3 '12 and $14.0 million in Q4 '11.
Wave expects to realize a full quarter's benefit from these cost
reductions starting in Q1 '13, however the savings will b
e offset in
the period by annual audit and tradeshow expenses. 
Though Wave continues to view its Safend subsidiary as an important
strategic asset, during Q4 '12 Wave determined that sufficient
indicators of potential impairment existed to require an impairment
analysis for Safend. As a result of this review, Wave recorded
non-cash impairment charges totaling $7.5 million to write down the
value of goodwill and intangible assets attributed to Safend, of
which $3.4 million is included in the licensing and maintenance cost
of net revenues and $4.1 million is reflected in impairment of
goodwill and intangible assets. 
Wave recorded a Q4 '12 net loss of $13.0 million, or ($0.13) per
basic and diluted share, as compared to a net loss of $6.1 million,
or ($0.06) per basic and diluted share in Q3 '12 and a net loss of
$4.9 million, or ($0.05) per basic and diluted share in Q4 '11. Per
share figures are based on a weighted average number of basic shares
outstanding during Q4 '12, Q3 '12 and Q4 '11 and of 104.0 million,
98.0 million and 88.5 million, respectively. 
To illustrate its operational performance on a cash-flow basis, Wave
reports EBITDAS, a non-GAAP measure defined as earnings before
impairment expense, interest income (expense), income taxes,
depreciation and amortization and stock-based compensation expense.
Wave recorded negative EBITDAS of $4.1 million in Q4 '12, compared
with negative EBITDAS of $4.2 million in Q3 '12 and negative EBITDAS
of $2.8 million in Q4 '11. 
As of December 31, 2012, Wave's total current assets were $9.4
million and total current liabilities, including the current portion
of deferred revenue totaling $5.9 million, were $15.1 million. Cash
and cash equivalents were $2.1 million at December 31, 2012, as
compared to $2.2 million at September 30, 2012 and $3.4 million at
December 31, 2011. Year-end 2012 cash does not include $1.7 million
received in February 2013 under a three-year maintenance contract
signed in Q4 '12. 
Wave raised net proceeds of $313,506 in early Q4 '12 through the
issuance of 325,590 shares of its Class A common stock at an average
price of $0.99 per share through its At The Market (ATM) structure.
Wave raised gross proceeds of $3.3 million in a registered direct
offering in October 2012. Additionally, last week, Wave raised gross
proceeds of $1 million from the sale of Class A common stock and
warrants; the offering was priced at the March 11th closing price of
$0.83 per share. 
CEO Commentary:
 Wave CEO, Steven Sprague, commented, "While 2012 was
challenging from a revenue perspective, we made important strategic
investments to advance our solutions for security, management and
data protection in the mobile world of tablets and smartphone
devices. In 2011, we saw the current trend towards mobile and
implemented our own mobile strategy that leverages the unique Trusted
Computing functionality only Wave can provide. We were certainly
surprised by both the speed of mobile adoption and the impact it has
had on demand for some of our core PC solutions, but we were not
alone in that regard given the fundamental changes in the PC industry
over the last year. 
"We believe these developments have set the stage for significant
opportunities for Wave in 2013 and beyond, and we have focused our
sales and marketing efforts on our unique security and management
capabilities for Windows 8 tablets, including Microsoft's Surface Pro
and Dell's Latitude 10. The initial enterprise response to this
solution has been positive, and this development has prompted
opportunities to continue to promote this security infrastructure for
managing existing devices running Windows 7. We are now beginning to
ship prototype tablet software but do not anticipate any meaningful
order activity until Q2 at the earliest. 
"Windows 8 tablets managed by Wave can leverage robust hardware-based
security and eliminate passwords for enterprise VPN or WiFi access on
a global basis. When our software is combined with Microsoft Active
Directory, there is no need for an additional layer of Mobile Device
Management for Windows 7 or 8 devices. We expect to extend this
capability to other mobile devices as well, offering enterprises a
single cost-effective, hardware-based system to manage security and
network access across three device form factors.  
"Whether a PC, a tablet or a smartphone, Wave's Trusted Computing
solutions offer a superior, cost-effective, industry standard
approach to managing devices and thwarting today's cyber threats in a
user-friendly way," Mr. Sprague added. "We believe our PC and tablet
solutions can help enterprises and governments to utilize the
strength, convenience, management and favorable cost of ownership of
Trusted Computing solutions to solve the security and management
challenges created by the device 'arms race' they are struggling to
Recent News and Developments 

--  In March, a European governmental agency selected EMBASSY Remote
    Administration Server (ERAS) software for the management of PC-based
    Trusted Platform Modules (TPM). An initial order was executed for
    approximately 6,000 seat licenses plus professional services support.
--  Wave's EMBASSY Remote Administration Server 2.9.5 demonstrated
ilities for securing access control credentials and utilizing
    virtual smartcards to prevent cyber attacks against domain
    credentials. This capability can eliminate the need for a security
    token infrastructure.
--  Wave expanded its distribution channel in the Asia-Pacific region
    through strategic agreements with Infodat Technologies in India;
    TechSearch Corp. in Korea; and Bangkok Systems & Software in
--  SC Magazine published a feature on Trusted Computing with commentary
    from Wave customers, partners and executives.
--  Wave's Safend Data Protection Suite (DPS) won in the "Best Data
    Security/Loss Management Solution" category at Government Security
    News' 4th Annual Homeland Security Awards.
--  Wave launched Scrambls for Enterprise, enabling safe collaboration
    over social media sites like Twitter(R) and Facebook, and encrypted
    file sharing via cloud services like Dropbox(TM) and

About Wave Systems 
 Wave Systems Corp. reduces the complexity, cost
and uncertainty of data protection by starting inside the device.
Unlike other vendors who try to secure information by adding layers
of software for security, Wave leverages the security capabilities
built directly into endpoint computing platforms themselves. Wave has
been a leading expert in this growing trend, leading the way with
first-to-market solutions and helping shape standards through its
work as a board member for the Trusted Computing Group. 
Safe Harbor for Forward-Looking Statements
 This press release may
contain forward-looking information within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act),
including all statements that are not statements of historical fact
regarding the intent, belief or current expectations of the company,
its directors or its officers with respect to, among other things:
(i) the company's financing plans; (ii) trends affecting the
company's financial condition or results of operations; (iii) the
company's growth strategy and operating strategy; and (iv) the
declaration and payment of dividends. The words "may," "would,"
"will," "expect," "estimate," "anticipate," "believe," "intend" and
similar expressions and variations thereof are intended to identify
forward-looking statements. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, many of which are beyond the
company's ability to control, and that actual results may differ
materially from those projected in the forward-looking statements as
a result of various factors. Wave assumes no duty to and does not
undertake to update forward-looking statements.  
All brands are the property of their respective owners. 

                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                   Consolidated Statements of Operations                    
                         Three Months Ended          Twelve months ended    
                            December 31,                December 31,        
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
Net revenues:                                                               
  Licensing and                                                             
   maintenance          6,530,639    10,482,551    27,480,732    35,100,518 
  Services                600,000       551,964     1,363,781     1,038,497 
                     ------------  ------------  ------------  ------------ 
Total net revenues   $  7,130,639  $ 11,034,515  $ 28,844,513  $ 36,139,015 
                     ------------  ------------  ------------  ------------ 
Operating expenses:                                                         
  Licensing and                                                             
   maintenance -                                                            
   cost of net                                                              
   revenues             4,331,166       692,583     6,333,221     1,848,482 
  Services - cost of                                                        
   net revenues                 -        86,998       144,111       189,167 
  Adjustments to                                                            
   accounting                   -     1,033,206             -     1,033,206 
  Selling, general                                                          
   administrative       7,459,890     8,583,669    33,021,237    27,871,223 
  Research and                                                              
   development          4,194,337     5,369,783    19,055,894    16,087,129 
  Impairment of                                                             
   goodwill and                                                             
   intangible assets    4,054,732             -     4,054,732             - 
                     ------------  ------------  ------------  ------------ 
Total operating                                                             
 expenses              20,040,125    15,766,239    62,609,195    47,029,207 
                     ------------  ------------  ------------  ------------ 
Operating loss        (12,909,486)   (4,731,724)  (33,764,682)  (10,890,192)
                     ------------  ------------  ------------  ------------ 
Other income                                                                
  Net currency                                                              
   transaction gain                                                         
   (loss)                     403       (55,2
73)       12,156       175,004 
  Net interest                                                              
   expense                (98,695)       (1,461)     (197,989)       (4,589)
                     ------------  ------------  ------------  ------------ 
Total other income                                                          
 (expense)                (98,292)      (56,734)     (185,833)      170,415 
                     ------------  ------------  ------------  ------------ 
Loss before income                                                          
 taxes                (13,007,778)   (4,788,458)  (33,950,515)  (10,719,777)
Income tax expense        (12,033)      (74,959)      (12,033)      (74,959)
                     ------------  ------------  ------------  ------------ 
Net loss              (13,019,811)   (4,863,417)  (33,962,548)  (10,794,736)
Loss per common                                                             
 share - basic and                                                          
 diluted             $      (0.13) $      (0.05) $      (0.35) $      (0.13)
                     ============  ============  ============  ============ 
Weighted average                                                            
 number of common                                                           
 shares outstanding                                                         
 during the period    104,003,922    88,544,911    96,204,505    84,344,729 
                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                     Consolidated Supplemental Schedule                     
                         Three Months Ended          Twelve months ended    
                            December 31,                December 31,        
                         2012          2011          2012          2011     
                     ------------  ------------  ------------  ------------ 
Total net revenues   $  7,130,639  $ 11,034,515  $ 28,844,513  $ 36,139,015 
Increase (decrease)                                                         
 in deferred revenue    2,127,204       491,688        84,904    (3,331,530)
                     ------------  ------------  ------------  ------------ 
Total billings (Non-                                                        
 GAAP)               $  9,257,843  $ 11,526,203  $ 28,929,417  $ 32,807,485 
                     ============  ============  ============  ============ 
Net loss as reported $(13,019,811) $ (4,863,417) $(33,962,548) $(10,794,736)
Net interest expense       98,695         1,461       197,989         4,589 
Income tax expense         12,033        74,959        12,033        74,959 
Depreciation and                                                            
 amortization             525,309       566,274     2,136,830     1,005,068 
 expense                  843,243     1,441,356     4,830,831     5,379,961 
Impairment of                                                               
 goodwill and                                                               
 intangible assets      7,477,832             -     7,477,832             - 
                     ------------  ------------  ------------  ------------ 
EBITDAS (Non-GAAP)   $ (4,062,699) $ (2,779,367) $(19,307,033) $ (4,330,159)
                     ============  ============  ============  ============ 

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 impairment expense,
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                         
                                                December 31,   December 31, 
                                                    2012           2011     
                                               -------------  ------------- 
Current assets:                                                             
  Cash and cash equivalents                    $   2,112,769  $   3,385,035 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $-0- at December 31,                                
   2012 and 2011, respectively                     5,034,422      7,198,645 
  Pledged receivables                              1,801,683              - 
  Prepaid expenses                                   421,769        823,761 
                                               -------------  ------------- 
    Total current assets                           9,370,643     11,407,441 
  Property and equipment, net                        871,568      1,236,844 
  Amortizable intangible assets, net               4,028,333     10,925,306 
  Goodwill                                         4,038,000      6,216,059 
  Other assets                                       324,614        336,607 
                                               -------------  ------------- 
Total Assets                                      18,633,158     30,122,257 
                                               =============  ============= 
Liabilities and Stockholders' Equity (Deficit)                              
Current liabilities:                                                        
  Secured borrowings                               1,537,710              - 
  Accounts payable and accrued expenses            7,570,723      6,701,026 
  Current portion of capital lease payable            44,658         72,074 
  Deferred revenue                                 5,949,087      6,619,257 
                                               -------------  ------------- 
    Total current liabilities                     15,102,178     13,392,357 
Long-term portion of capital lease payable                 -         44,659 
Other long-term liabilities                           97,996         66,283 
Royalty liability                                  4,486,129      4,043,163 
Long-term deferred revenue                         1,812,312      1,035,220 
                                               -------------  ------------- 
      Total liabilities                           21,498,615     18,581,682 
                                               -------------  ------------- 
Stockholders' Equity (Deficit):                                             
Common stock, $.01 par value. Authorized                                    
 150,000,000 shares as Class A; 105,007,873                                 
 shares issued and outstanding in 2012 and                                  
 89,574,385 in 2011                                1,050,079        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                   393,000,325    373,598,144 
Accumulated deficit                             (396,916,216)  (362,953,668)
                                               -------------  ------------- 
      Total Stockholders' Equity (Deficit)        (2,865,457)    11,540,575 
                                               -------------  ------------- 
Total Liabilities and Stockholders' Equity                                  
 (Deficit)                                     $  18,633,158  $  30,122,257 
                                               =============  ============= 
Conference call:         Today, March 18, 2013 at 4:30 p.m. ET
Webcast / Replay URL:    www.wave.com/news/webcasts           
Dial-in numbers:         415-226-5356 or 212-231-2912         

Wave Systems Corp. 
Gerard T. Feeney
Investor Relations
David Collins, Eric Lentini
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