Wave Reports Q1 Revenues of $5.8 Million and Reviews Recent Developments

Wave Reports Q1 Revenues of $5.8 Million and Reviews Recent Developments 
LEE, MA -- (Marketwired) -- 05/09/13 --  Wave Systems Corp. (NASDAQ:
WAVX), the Trusted Computing company, today reported financial
results for its first quarter ended March 31, 2013 (Q1 '13) and
updated investors on its business strategy and recent developments. 
In Q1 '13 Wave's total net revenues declined to $5.8 million,
compared to $7.0 million in Q1 '12 and $7.1 million in Q4 '12. The
decrease was principally due to continued reductions in OEM software
bundling revenue which declined by $1.4 million in Q1 '13 versus Q1
'12 and by $0.5 million versus Q4 '12. The decrease in bundled
software sales principally reflects lower PC shipment volumes. Total
net revenues in Q1 '13 included $0.8 million in services revenues
from a U.S. Government consulting contract compared to total services
revenues of $0.3 million in Q1 '12 and $0.6 million in Q4 '12. 
Total billings for Q1 '13 declined to $5.9 million versus $6.7
million in Q1 '12 and $9.3 million in Q4 '12, which included $1.7
million in maintenance fees to be recorded ratably through December
31, 2015. Q1 '13 total billings included $1.0 million from its Safend
subsidiary, down from $1.6 million in Q1 '12 and $1.7 million in Q4
Reflecting ongoing cost reduction initiatives, Wave's combined SG&A
and R&D expenses declined to $11.2 million in Q1 '13 compared to
$14.6 million in Q1 '12 and $11.7 million in Q4 '12.  
After a review of the quarterly operating results of Safend, Wave
determined that sufficient indicators of further potential impairment
existed to require an updated impairment analysis for Safend. As a
result of that analysis, Q1 '13 total operating expenses include an
additional $4.2 million in non-cash impairment charges to write down
the value of goodwill and certain intangible assets attributed to
Safend, of which $1.6 million is included in the licensing and
maintenance cost of net revenues and $2.6 million is reflected in
impairment of goodwill and intangible assets. Wave's Q4 '12 results
also included $7.5 million in non-cash impairment charges related to
Safend, of which $3.4 million was recorded as licensing and
maintenance cost of net revenues. 
Inclusive of the Safend impairment charges, Wave r
ecorded a Q1 '13
net loss of $10.2 million, or ($0.10) per share, as compared to a net
loss of $8.3 million, or ($0.09) per share in Q1 '12 and a net loss
of $13.0 million, or ($0.13) per share in Q4 '12, which included $7.5
million in Safend impairment charges. Per share figures are based on
a weighted average number of basic shares outstanding during Q1 '13,
Q1 '12 and Q4 '12 of 105.4 million, 90.2 million and 104.0 million,
To illustrate its operational performance on a cash-flow basis, Wave
reports EBITDAS, a non-GAAP measure defined as earnings before
impairment expense, interest expense, income taxes, depreciation and
amortization and stock-based compensation expense. Wave recorded
negative EBITDAS of $5.2 million in Q1 '13, compared with negative
EBITDAS of $6.4 million in Q1 '12 and negative EBITDAS of $4.1
million in Q4 '12.  
As of March 31, 2013, Wave's total current assets were $5.9 million
and total current liabilities, including the current portion of
deferred revenue totaling $6.5 million, were $15.7 million. Cash and
cash equivalents were $1.8 million at March 31, 2013, as compared to
$2.3 million at March 31, 2012 and $2.1 million at December 31, 2012.
Utilizing its At-The-Market share sale facility, Wave raised
approximately $263,500 during Q1 '13 from the sale of its Class A
common stock at an average price of $0.715 per share. Wave also
raised an additional $1.0 mil
lion in a private placement during
Q1'13. Subsequent to the close of Q1 '13, Wave raised gross proceeds
of approximately $3.2 million through the sale of its Class A common
CEO Commentary:
 "Over the past 18 months Wave has made substantial
investments in R&D and sales and marketing to position the company in
the market for mobility management of Windows 8 devices as well as
Windows 7 and earlier generation machines that are based on Trusted
Computing Group (TCG) standards," commented Wave CEO Steven Sprague.
"Windows 8 shipments have already reached 100 million units, with the
launch of Windows 8 smartphones soon to follow. This growing
installed base builds on over 600 million already deployed
TCG-compliant devices to present a significant market opportunity. 
"With these investments completed, Wave's management and Board of
Directors developed and are implementing a company-wide program of
personnel and spending reductions that bring Wave's overhead into
closer alignment with current revenue trends and the company's
financial position. Combined with previous actions, these reductions
are intended to reduce overall spending across all departments by
approximately $10 million per year, until such time as Wave's
revenue, working capital and cash flow could support increased
investment. These additional cost reduction initiatives are currently
underway and are anticipated to reduce Wave's cash burn without any
significant one-time costs or charges. 
"The global rollout of Windows 8 devices is an important development
for Trusted Computing awareness, and the simplicity and ROI of our
standards-based solutions are finally being more broadly recognized,"
Mr. Sprague continued. "Because Wave's solutions are able to work
across Windows 8 PCs, tablets and forthcoming smartphones, as well as
earlier generation PCs, an enterprise is now able to leverage our
solutions across most or all of their devices." 
The key benefits of Wave's Trusted Computing-based solutions include: 

--  Eliminating passwords to access services one password at a time
--  Making devices safe to lose
--  Enabling the private use of public cloud services
--  Only known devices with known capabilities have access to sensitive
    data and services

Mr. Sprague added, "Many IT managers are recognizing that mobility is
transforming computing and that device-based identity is the most
secure, efficient and cost-effective means to deliver security and a
great user experience across a variety of devices. We have seen some
indication of this reflected in new enterprise customer wins in
Europe and the U.S. Windows 8 is also bringing Trusted Computing
capabilities to consumer devices for the first time on a broad scale.
This is a significant development as it substantially expands the
Trusted Computing market opportunity. It also enables enterprise and
government to deliver and secure a broad range of B-to-C solutions
across healthcare, financial services, entertainment and other
verticals using our solutions. 
"Today we unveiled a pilot version of Wave Knowd, a web service that
utilizes hardware-based machine identification to enable and measure
the strength of secure identity relationships with Internet services.
Using Knowd, consumers will be able to increase their security and
lessen their reliance on passwords, while also managing their 'trust
score' to enable the most secure connections.  
"Interest in Wave's portfolio of solutions is also being bolstered by
a range of governmental standards and regulations supporting TCG
standards. FICAM, FIPS, NIST and NSTIC, along with ESG and others in
Europe all support TCG standards. We are also continuing our efforts
to expand our distribution reach through agreements such as today's
with Fujitsu. We believe that Wave is well positioned for this
growing market opportunity." 
Social Media Disclosure Policy 
 In response to the SEC's recent
commentary on the use of social media for corporate disclosure, Wave
is notifying investors, the media and others interested in the
company that in the future, it might choose to communicate material
information via social media channels or, it is possible that
information it discloses through social media channels may be deemed
to be material. Therefore, Wave encourages investors, the media and
others interested in Wave to review the information made available by
Wave through: 

--  Twitter: under @WaveSystems.
--  LinkedIn: on the company's profile page.
--  StockTwits: under its WaveSystems account.
--  YouTube: on the company's WaveSystems channel.

Wave also plans to use the "BUZZ hub" landing page on its corporate
website to host social media disclosures and/or links to/from such
disclosures. Any updates to the list of social media channels Wave
will use to announce material information will be posted on the
Investor Relations page of the company's website at
Director John McConnaughy to Retire
 As disclosed in Wave's proxy,
John E. McConnaughy, Jr. will retire as a Director at the expiration
of his term at Wave's Annual Meeting on June 20, 2013. "The company
and the Board of Directors thank John for his many years of valuable
service," said Mr. Sprague. "His insight, business experience,
common-sense and personality will be missed." 
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 r
espective owners. 

                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                   Consolidated Statements of Operations                    
                                                    Three Months Ended      
                                                         March 31,          
                                                    2013           2012     
                                               -------------  ------------- 
Net revenues:                                                               
  Licensing                                        4,993,726      6,658,267 
  Services                                           800,000        323,870 
                                               -------------  ------------- 
Total net revenues                             $   5,793,726  $   6,982,137 
                                               -------------  ------------- 
Operating expenses:                                                         
  Licensing - cost of net revenues                 2,038,599        689,630 
  Services - cost of net revenues                    107,361         61,830 
  Selling, general, and administrative             7,366,003      9,547,783 
  Research and development                         3,848,982      5,017,479 
  Impairment of goodwill                           2,590,000              - 
                                               -------------  ------------- 
  Total operating expenses                        15,950,945     15,316,722 
                                               -------------  ------------- 
Operating loss                                   (10,157,219)    (8,334,585)
                                               -------------  ------------- 
Other income (expense):                                                     
  Net currency transaction gain                        1,631         23,600 
  Net interest expense                               (58,167)        (2,105)
                                              -------------  ------------- 
Total other income (expense)                         (56,536)        21,495 
                                               -------------  ------------- 
Net loss                                         (10,213,755)    (8,313,090)
Loss per common share - basic and diluted      $       (0.10) $       (0.09)
                                               =============  ============= 
Weighted average number of common shares                                    
 outstanding during the period                   105,390,753     90,233,603 
                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                     Consolidated Supplemental Schedule                     
                                                    Three Months Ended      
                                                         March 31,          
                                                    2013           2012     
                                               -------------  ------------- 
Total net revenues                             $   5,793,726  $   6,982,137 
Net increase (decrease) in deferred revenue                                 
 and unpaid deferrals                                 97,388       (278,806)
                                               -------------  ------------- 
Total billings (Non-GAAP)                      $   5,891,114  $   6,703,331 
                                               =============  ============= 
Net loss as reported                           $ (10,213,755) $  (8,313,090)
Net interest expense                                  58,167          2,105 
Income tax (benefit) expense                               -       
Depreciation and amortization                        315,909        526,789 
Stock-based compensation expense                     437,706      1,355,752 
Impairment of goodwill and amortizable                                      
 intangible assets                                 4,205,000              - 
                                               -------------  ------------- 
EBITDAS (Non-GAAP)                             $  (5,196,973) $  (6,428,444)
                                               =============  ============= 

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                         
                                                 March 31,     December 31, 
                                                    2013           2012     
                                               -------------  ------------- 
Current assets:                                                             
  Cash and cash equivalents                    $   1,823,136  $   2,112,769 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $-0- at March 31, 2013                              
   and December 31, 2012                           2,999,413      5,034,422 
  Pledged receivables                                690,284      1,801,683 
  Prepaid expenses                                   419,409        421,769 
                                               -------------  ------------- 
    Total current assets                           5,932,242      9,370,643 
  Property and equipment, net                        832,365        871,568 
  Amortizable intangible assets, net               2,230,550      4,028,333 
  Goodwill                                         1,448,000      4,038,000 
    Other assets                                     327,918  
                                               -------------  ------------- 
Total Assets                                      10,771,075     18,633,158 
                                               =============  ============= 
Liabilities and Stockholders' Deficit                                       
Current liabilities:                                                        
  Secured borrowings                                 599,180      1,537,710 
  Accounts payable and accrued expenses            8,621,887      7,570,723 
  Current portion of capital lease payable            25,762         44,658 
  Deferred revenue                                 6,482,497      5,949,087 
                                               -------------  ------------- 
    Total current liabilities                     15,729,326     15,102,178 
  Other long-term liabilities                         98,227         97,996 
  Royalty liability                                4,408,186      4,486,129 
  Long-term deferred revenue                       1,961,857      1,812,312 
                                               -------------  ------------- 
    Total liabilities                             22,197,596     21,498,615 
                                               -------------  ------------- 
Stockholders' Equity (Deficit):                                             
Common stock, $.01 par value. Authorized                                    
 150,000,000 shares as Class A; 106,644,576                                 
 shares issued and outstanding in 2013 and                                  
 105,007,873 in 2012                               1,066,446      1,050,079 
Common stock, $.01 par value. Authorized                                    
 13,000,000 shares as Class B; 35,556 shares                                
 issued and outstanding in 2013 and 2012                 355            355 
Capital in excess of par value                   394,636,649    393,000,325 
Accumulated deficit                             (407,129,971)  (396,916,216)
                                               -------------  ------------- 
    Total Stockholders' Deficit                  (11,426,521)    (2,865,457)
                                               -------------  ------------- 
Total Liabilities and Stockholders' Deficit    $  10,771,075  $  18,633,158 
                                               =============  ============= 
Conference call:         Today, Thursday, May 9, 2013 at 4:30 p.m. EDT
Webcast / Replay URL:    www.wave.com/news/webcasts                   
Dial-in numbers:         415-226-5359 or 212-231-2922                 

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