Wave Reduces Q3 Net Loss with Lower Expenses on Revenues of $6.3M; Q3 Total Billings of $7.1M Exceed Q2 and Year Ago Q3 Levels

Wave Reduces Q3 Net Loss with Lower Expenses on Revenues of $6.3M; Q3 Total 
Billings of $7.1M Exceed Q2 and Year Ago Q3 Levels 
LEE, MA -- (Marketwired) -- 11/07/13 --  Wave Systems Corp. (NASDAQ:
WAVX) today reported financial results for its third quarter ended
September 30, 2013 (Q3 '13). Wave also reviewed recent management
team appointments that are initial steps in a strategic refocusing of
the company under Bill Solms who was appointed acting CEO following
the close of the third quarter. 
Wave's Q3 '13 total net revenues decreased 10% to $6.3 million from
$7.0 million in Q3 '12 and by 6% from $6.7 million in Q2 '13. The
year-over-year decrease was principally due to a $0.7 million
reduction in OEM software bundling revenues primarily as the result
of lower PC shipment volumes and the mix of products in those
shipments. Total services net revenues rose to $0.4 million in Q3
'13, compared to $40,000 in Q3 '12 but declined versus $0.6 million
in Q2 '13. Total licensing and maintenance net revenues in Q3 '13
included $1.3 million from Wave's Safend subsidiary, as compared to
$1.5 million in Q3 '12 and $1.1 million in Q2 '13. 
Total billings for Q3 '13 increased by 16% to $7.1 million versus
$6.1 million in Q3 '12 and rose by 20% as compared to $5.9 million in
Q2 '13. Total billings in Q3 '13 included $1.8 million from Safend,
up from $1.3 million in Q3 '12 and $1.1 million in Q2 '13. The
increase in billings increase principally reflects the benefits of
higher sales activity from Safend and an early maintenance renewal
coupled with new data loss protection and self-encrypting drive
license purchases by a significant customer.  
Reflecting ongoing cost containment initiatives, Wave's consolidated
operating expenses declined 30% to $9.1 million in Q3 '13 as compared
to $13.0 million in Q3 '12 and by 11% as compared to $10.2 million in
Q2 '13. 
Wave recorded a Q3 '13 net loss of $2.9 million, or ($0.09) per
share, as compared to a net loss of $6.1 million, or ($0.25) per
share in Q3 '12, and a net loss of $3.5 million, or ($0.12) per share
in Q2 '13. Per share figures are based on a weighted average number
of basic shares outstanding during Q3 '13, Q3 '12 and Q2 '13 of 31.1
million, 24.5 million and 28.3 million, respectively. Wave's
loss-per-share and weighted average number of shares outstanding in
the year-ago period have been adjusted to reflect the company's
1-for-4 reverse stock split on July 1, 2013. 
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,
amortization and stock-based compensation expense. Wave's negative
EBITDAS improved to $2.2 million in Q3 '13, compared with negative
EBITDAS of $4.2 million in Q3 '12 and negative EBITDAS of $2.5
million in Q2 '13. 
As of September 30, 2013, Wave's total current assets were $6.9
million and total current liabilities, including the current portion
of deferred revenue totaling $7.1 million, were $13.9 million. Cash
and cash equivalents rose to $1.8 million at September 30, 2013 as
compared to $0.9 million at June 30, 2013. Wave raised approximately
$2.6 million during Q3 '13 from the sale of 1.9 million shares of its
Class A common stock at an average price of $1.39 per share through
its At-The-Market (ATM) share sale facility. Wave also raised an
additional $1.5 million during Q3 '13 from the sale of 1.2 million
shares of its Class A common stock at a price of $1.27 per share.
Subsequent to the close of Q3 '13, Wave raised gross proceeds of $0.9
million from the sale of 0.7 million shares of Class A common stock
at an average price of $1.37 per share through its ATM share sale
facility. 
CEO Commentary:
 Wave CEO Bill Solms commented, "While Wave made
progress in Q3, substantial work remains to put the company on a
clear and sustained path toward growth and profitability. With input
from the rest of the executive team, we have developed a plan that, I
believe, can deliver meaningful improvements to our performance. We
have begun to execute this new plan and hope to demonstrate visible
progress in the near term, but the sales cycles for both enterprise &
government customers can -- and usually do -- last several quarters.
Therefore, the many initiatives that we are starting now will take
time to yield results, while existing dialogues may move more
quickly. 
"I took the time to visit all of our offices worldwide where I
explained my plan to move Wave forward and took the opportunity to
listen to staff as well. I told them that Wave already possessed the
key ingredients we need to be successful; we just need to improve our
execution. In my due diligence prior to joining the company I saw
strong technology, good products, talented people and significant
market opportunities, yet there were issues that undermined our
success. I intend to work with our Board and executive team on
measures to address those issues without delay. 
"I will be leading Wave in a company-wide review of our projects,
products, business processes and sales and marketing strategy over
the next several weeks. From that review, we will decide which
opportunities and initiatives have the greatest potential for
success. I will also implement a clear vision in which I outline the
goals, roles, and responsibilities to achieve our plans. I believe
that clarity, efficiency and accountability are cornerstones of
success, and I intend to ensure those disciplines are the enduring
themes as we move forward.  
"Of course this process also requires some personnel changes -- both
additions and departures -- to build a team that can succeed. The
Board initiated this effort with my appointment and last week we were
able to attract Dell sales veteran Tom Conte, who shares our
excitement for Wave's potential, to replace me as the head of North
American Sales. I recognize that change can be difficult for any
company, but I have asked our employees for their patience,
dedication and willingness to follow new leadership. I ask the same
thing from our shareholders as we implement these strategies in the
coming months and quarters. I am excited by the significant
opportunities I see for the great products that Wave has already
developed." 
Conference call:  Today, Thursday, November 7, 2013 at 4:30 p.m. ET 
Webcast / Replay URL: http://www.media-server.com/m/p/vga526d3 
Dial-in numbers: 415-226-5358 or 212-231-2924 
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 is
a leading expert in this growing trend and is leading the way with
first-to-market solutions and helped shape standards through its
board seat on 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                    
                                (Unaudited)                                 
                                                                            
                          Three months ended          Nine months ended     
                        September    September     September     September  
                         30, 2013     30, 2012     30, 2013      30, 2012   
                       -----------  -----------  ------------  ------------ 
Net revenues:                                                               
  Licensing and                                                             
   maintenance         $ 5,851,325  $ 6,930,724  $ 16,978,355  $ 20,950,093 
  Services                 400,000       39,539     1,808,938       763,781 
                       -----------  -----------  ------------  ------------ 
Total net revenues       6,251,325    6,970,263    18,787,293    21,713,874 
                       -----------  -----------  ------------  ------------ 
                                                                            
Operating expenses:                                                         
  Licensing and                                                             
   maintenance - cost                                                       
   of net revenues         406,051      729,688     3,105,961     2,212,055 
  Services - cost of                                                        
   net revenues             65,149        7,521       277,665       144,111 
  Selling, general,                                                         
   and administrative    6,181,802    7,513,373    20,043,524    25,351,347 
  Research and                                                              
   development           2,493,354    4,793,453     9,254,464    14,861,557 
  Impairment of                                                             
   goodwill                      -            -     2,590,000             - 
                       -----------  -----------  ------------  ------------ 
  Total operating                                                           
   expenses              9,146,356   13,044,035    35,271,614    42,569,070 
                       -----------  -----------  ------------  ------------ 
  Operating loss        (2,895,031)  (6,073,772)  (16,484,321)  (20,855,196)
                       -----------  -----------  ------------  ------------ 
Other income                                                                
 (expense):                                                                 
  Net currency                                                              
   transaction gain                                                         
   (loss)                   (5,626)       1,965       (12,358)       11,753 
  Net interest expense     (43,166)     (36,685)     (151,196)      (99,294)
                       -----------  -----------  ------------  ------------ 
  Total other income                                                        
   (expense)               (48,792)     (34,720)     (163,554)      (87,541)
                       -----------  -----------  ------------  ------------ 
Net loss               $(2,943,823) $(6,108,492) $(16,647,875) $(20,942,737)
                       ===========  ===========  ============  ============ 
                                                                            
Loss per common share                                                       
 - basic and diluted   $     (0.09) $     (0.25) $      (0.58) $      (0.90)
                                                                            
Weighted average                                                            
 number of common                                                           
 shares outstanding                                                         
 during the period      31,132,377   24,496,793    28,609,207    23,396,431 

 
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 Schedules                     
                                (Unaudited)                                 
                                                                            
                          Three months ended          Nine months ended     
                        September    September     September     September  
                         30, 2013     30, 2012     30, 2013      30, 2012   
                       -----------  -----------  ------------  ------------ 
                                                                            
Total net revenues     $ 6,251,325  $ 6,970,263  $ 18,787,293  $ 21,713,874 
Increase (decrease) in                                                      
 deferred revenue          817,855     (884,795)      113,281    (1,900,663)
                       -----------  -----------  ------------  ------------ 
                                                                            
Total billings (Non-                                                        
 GAAP)                 $ 7,069,180  $ 6,085,468  $ 18,900,574  $ 19,813,211 
                       ===========  ===========  ============  ============ 
                                                                            
Net loss as reported   $(2,943,823) $(6,108,492) $(16,647,875) $(20,942,737)
Net interest expense        43,166       36,685       151,196        99,294 
Depreciation and                                                            
 amortization              216,571      539,001       763,840     1,611,521 
Stock-based                                                                 
 compensation expense      512,569    1,343,510     1,619,115     3,987,588 
Impairment of goodwill                                                      
 and amortizable                                                            
 intangible assets               -     
       -     4,205,000             - 
                       -----------  -----------  ------------  ------------ 
                                                                            
EBITDAS (Non-GAAP)     $(2,171,517) $(4,189,296) $ (9,908,724) $(15,244,334)
                       ===========  ===========  ============  ============ 

 
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, 2013, total billings were $5,940,
278 and consisted of total net revenues of $6,742,242 adjusted for a
decrease in deferred revenue of $801,964.  
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, 2013, negative EBITDAS was
$(2,540,235) and consisted of net loss as reported of $(3,490,297)
adjusted for net interest expense of $49,863, depreciation and
amortization of $231,359 and stock-based compensation expense of
$668,840.  


 
                                                                            
                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                        Consolidated Balance Sheets                         
                                (Unaudited)                                 
                                                                            
                                                                            
                                               September 30,   December 31, 
                                                    2013           2012     
                                               -------------  ------------- 
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents                    $   1,845,550  $   2,112,769 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $-0-                                                
  September 30, 2013 and December 31, 2012         3,875,367      5,034,422 
  Collateralized receivables                         622,938      1,801,683 
  Prepaid expenses                                   594,297        421,769 
                                               -------------  ------------- 
  Total current assets                             6,938,152      9,370,643 
  Property and equipment, net                        676,325        871,568 
  Amortizable intangible assets, net               2,736,596      4,028,333 
  Goodwill                                         1,448,000      4,038,000 
  Other assets                                       236,107        324,614 
                                               -------------  ------------- 
Total Assets                                      12,035,180     18,633,158 
                                               =============  ============= 
                                                                            
Liabilities and Stockholders' Deficit                                       
Current liabilities:                                                        
  Secured borrowings                                 529,497      1,537,710 
  Accounts payable and accrued expenses            6,306,378      7,570,723 
  Current portion of capital lease payable                 -         44,658 
  Deferred revenue                                 7,063,806      5,949,087 
                                               -------------  ------------- 
  Total current liabilities                       13,899,681     15,102,178 
  Other long-term liabilities                         81,036         97,996 
  Royalty liability                                4,489,279      4,486,129 
  Long-term deferred revenue                       1,355,940      1,812,312 
                                               -------------  ------------- 
    Total liabilities                             19,825,936     21,498,615 
                                               -------------  ------------- 
                                                                            
Stockholders' Deficit:                                                      
Common stock, $.01 par value. Authorized                                    
 150,000,000 shares as Class A; 32,658,879                                  
 shares issued and outstanding in 2013 and                                  
 26,251,968 in 2012                                  326,589        262,520 
Common stock, $.01 par value. Authorized                                    
 13,000,000 shares as Class B; 8,885 shares                                 
 issued and outstanding in 2013 and 2012               
   89             89 
Capital in excess of par value                   405,446,657    393,788,150 
Accumulated deficit                             (413,564,091)  (396,916,216)
                                               -------------  ------------- 
    Total Stockholders' Deficit                   (7,790,756)    (2,865,457)
                                               -------------  ------------- 
Total Liabilities and Stockholders' Deficit    $  12,035,180  $  18,633,158 
                                               =============  ============= 

 
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. 
Gerard T. Feeney
CFO 
413-243-1600  
Investor Relations
David Collins
Eric Lentini
212-924-9800
wavx@catalyst-ir.com 
 
 
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