Wave Trims Full Year 2013 Net Loss on Revenues of $24.4M

Wave Trims Full Year 2013 Net Loss on Revenues of $24.4M 
LEE, MA -- (Marketwired) -- 03/13/14 --  Wave Systems Corp. (NASDAQ:
WAVX), an enterprise security software provider, today reported
fourth quarter (Q4 '13) and full-year results for the periods ended
December 31, 2013. Wave will host a live webcast
http://www.media-server.com/m/p/mdpsrvop and conference call
(415-226-5356 or 212-231-2907) today at 4:30 p.m. ET to review its Q4
and full-year results.  
Q4 Financial Highlights 


 
--  Q4 '13 net loss declined by $9.3 million to $3.7 million, or ($0.11)
    per basic share, compared to a net loss of $13.0 million, or ($0.50)
    per basic share in Q4 '12, and increased by $0.8 million as compared
    with a net loss of $2.9 million, or ($0.09) per share, in Q3 '13. The
    Q4 '13 net loss included a one-time $1.0 million severance accrual
    related to Wave's former CEO. Wave's Q4 '12 net loss included $7.5
    million of goodwill and intangible asset impairment charges. As
    applicable, the prior period per share amounts have been adjusted for
    the 1-for-4 reverse stock split of July 1, 2013.
    
    
--  Q4 '13 combined SG&A and R&D expenses declined by 22% to $8.9
    million versus Q4 '12 reflecting ongoing cost management efforts.
    Excluding the $1.0 million severance liability noted above, Wave's
    SG&A and R&D expenses would have decreased by 31% in Q4 '13
    versus the year ago period.
    
    
--  Q4 '13 total net revenues decreased 21% to $5.6 million versus Q4 '12,
    primarily due to a $0.6 million reduction in services revenue and a
    $0.4 million reduction in OEM software bundling revenue. Q4 '13 total
    net revenues declined 11% over Q3 '13 revenues of $6.3 million, which
    included $0.4 million of services revenue. Wave had no services
    revenues in Q4 '13 primarily due to the completion of a government
    contract.
    
    
--  Q4 '13 total billings declined 41% to $5.4 million versus Q4 '12.
    Total billings in Q4 '12 included a three-year maintenance renewal of
    $1.7 million for a large class customer. Total billings for Q4 '13
    declined 24% versus Q3 '13 total billings of $7.1 million, which
    included a total of $0.4 million for additional license purchases and
    the 2014 maintenance renewal for a large customer.

  
Full Year 2013 Financial Highlights 


 
--  2013 net loss declined by $13.7 million to $20.3 million, or ($0.68)
    per basic share, as compared to a net loss of $34.0 million, or
    ($1.41) per basic share, in 2012. Wave's 2013 and 2012 net losses
    included $4.2 million and $7.5 million, respectively, of goodwill and
    intangible asset impairment charges. As applicable, the prior period
    per share amounts have been adjusted for the 1-for-4 reverse stock
    split of July 1, 2013.
    
    
--  2013 revenue declined to $24.4 million from $28.8 million in 2012,
    principally due to a $3.3 million decrease in OEM software bundling
    revenue.
    
    
--  2013 total operating expenses decreased 29% to $44.5 million versus
    $62.6 million in 2012.

  
Working Capital and Fundraising  
At year-end 2013 Wave's total current assets were $7.0 million, while
total current liabilities were $15.2 million, including $7.0 million
in deferred revenue. Cash and cash equivalents were $2.1 million at
year-end, compared to $1.8 million at September 30, 2013 and $2.1
million at December 31, 2012.  
During Q4 '13 Wave raised $1.2 million from the sale of 1.0 million
common shares at an average price of $1.22 per share through its
At-The-Market (ATM) share sale facility and raised an additional $1.1
million from the sale of 1.3 million common shares at $0.9725 per
share in a registered direct offering.  
To date in 2014, Wave has raised $5.4 million from the sale of 5.3
million common shares through its ATM share sale facility at an
average price of $1.02 per share. 
Recent Corporate Developments:  


 
--  Wave announces comprehensive management for Kingston's KC300 Opal SSD
    drives
--  Wave appoints Lorraine Hariton and David Cote to Board
--  Wave joins the FIDO Alliance
--  Wave began shipping its management software with Samsung Electronics
    new Trusted Platform Module security chips for the OEM market during
    Q1 2014
--  Wave expanded partnership with Samsung to offer management software
    for Samsung's new 840 EVO Solid-State Self-Encrypting Drives
--  Wave's encryption management software accepted for evaluation for
    commercial certification by UK Government's information security group
    (CESG)
--  Government Security News selected Wave's virtual smart card solution
    for Homeland Security award
--  Wave partnered with Intel to provide management software for Intel's
    Pro 1500 Series Solid-State Self-Encrypting Drives

  
CEO Commentary:  
"The past six months were the start of a period of critical
transition for Wave -- marked by numerous changes to our operations,
a more focused sales and marketing strategy, and targeted headcount
changes across the organization," said Wave CEO Bill Solms. "We have
established ways to improve efficiency across every aspect of our
business, especially in how we develop, market, and sell our
products. 
"There have been several recent changes to our operations that are
all focused on my three goals of clarity, efficiency and
accountability within Wave. These changes covered the spectrum from
travel policy to personnel reviews to a formalized process for
deciding which concepts become projects and which projects become
products. We drastically revised our sales and marketing plans to
focus our sales efforts on higher margin Wave solutions and products,
and to target sales efforts toward larger customers with the Wave
security message. We are looking for new use cases for our existing
products that we hope will drive new customers to our solutions and
in some cases present new market opportunities as well. Wave's
Virtual Smart Card solution is a good example of this strategy, where
we are competing against external security tokens such as RSA tokens
and Active Identity dongles and are also pursuing opportunities in
the EMV (Europay, MasterCard, Visa) market for authenticating credit
and debit card transactions. Both are made possible by our current
TPM security chip management technology.  
"Finally, in an effort to improve our offerings to larger customers,
we have recently added three new sales reps with the background and
skills to help us address these sophisticated sales opportunities. We
have also reduced sales reps in other areas in order to remain
headcount neutral and control costs. 
"These changes have involved growing pains, however they leave us
better positioned to execute strategies designed to put us on the
path towards sustained growth and profitability. This is not a
short-term proposition, and it will likely take a few quarters before
the financial benefits become clear. However, there are already signs
that our initiatives are resonating both inside and outside our
company, making me confident that the work we're doing today is
setting us up for a promising future." 
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 th
is 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 t
o 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          Twelve months ended    
                            December 31,                December 31,        
                         2013        2012 (1)      2013 (2)      2012 (1)   
                     ------------  ------------  ------------  ------------ 
Net revenues:                                                               
  Licensing and                                                             
   maintenance       $  5,613,559  $  6,530,639  $ 22,591,914  $ 27,480,732 
  Services                      -       600,000     1,808,938     1,363,781 
                     ------------  ------------  ------------  ------------ 
Total net revenues      5,613,559     7,130,639    24,400,852    28,844,513 
                     ------------  ------------  ------------  ------------ 
Operating expenses:                                                         
  Licensing and                                                             
   maintenance -                                                            
   cost of net                                                              
   revenues               313,310     4,510,166     3,419,271     6,722,221 
  Services - cost of                                                        
   net revenues                 -             -       277,665       144,111 
  Selling, general                                                          
   and                                                                      
   administrative       6,786,112     7,280,890    26,829,636    32,632,237 
  Research and                                                              
   development          2,125,794     4,194,337    11,380,258    19,055,894 
  Impairment of                                                             
   goodwill and                                                             
   intangible assets            -     4,054,732     2,590,000     4,054,732 
                     ------------  ------------  ------------  ------------ 
Total operating                                                             
 expenses               9,225,216    20,040,125    44,496,830    62,609,195 
                     ------------  ------------  ------------  ------------ 
Operating loss         (3,611,657)  (12,909,486)  (20,095,978
)  (33,764,682)
                     ------------  ------------  ------------  ------------ 
Other income                                                                
 (expense):                                                                 
  Net currency                                                              
   transaction gain                                                         
   (loss)                  (4,862)          403       (17,220)       12,156 
  Net interest                                                              
   expense                (49,260)      (98,695)     (200,456)     (197,989)
                     ------------  ------------  ------------  ------------ 
Total other income                                                          
 (expense)                (54,122)      (98,292)     (217,676)     (185,833)
                     ------------  ------------  ------------  ------------ 
Loss before income                                                          
 taxes                 (3,665,779)  (13,007,778)  (20,313,654)  (33,950,515)
Income tax expense         10,610        12,033        10,610        12,033 
                     ------------  ------------  ------------  ------------ 
Net loss               (3,676,389)  (13,019,811)  (20,324,264)  (33,962,548)
                                                                            
Loss per common                                                             
 share - basic and                                                          
 diluted (3)         $      (0.11) $      (0.50) $      (0.68) $      (1.41)
                     ============  ============  ============  ============ 
Weighted average                                                            
 number of common                                                           
 shares outstanding                                                         
 during the period                                                          
 (3)                   33,436,124    26,000,981    29,825,854    24,051,126 
                                                                            
  (1)  Year-ago Q4 and full year periods reflect non-cash impairment charges
       totaling $7.5M for the write down of goodwill and intangible assets  
       attributed to Wave's Safend subsidiary, of which $3.4M is included in
       licensing and maintenance -- cost of net revenues and $4.1M is       
       reflected as an impairment of goodwill and intangible assets.        
                                                                            
  (2)  Full year 2013 reflects 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.                        
                                                                            
  (3)  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 Schedule                     
                                (Unaudited)                                 
                                                                            
                         Three Months Ended          Twelve months ended    
                            December 31,                December 31,        
                         2013          2012          2013          2012     
                     ------------  ------------  ------------  ------------ 
Total net revenues   $  5,613,559  $  7,130,639  $ 24,400,852  $ 28,844,513 
Increase (decrease)                                                         
 in deferred revenue     (190,072)    2,127,204       (76,791)       84,904 
                     ------------  ------------  ------------  ------------ 
                                                                            
Total billings (Non-                                                        
 GAAP)               $  5,423,487  $  9,257,843  $ 24,324,061  $ 28,929,417 
                     ============  ============  ============  ============ 
                                                                            
                                                                            
Net loss as reported $ (3,676,389) $(13,019,811) $(20,324,264) $(33,962,548)
Net interest expense       49,260        98,695       200,456       197,989 
Income tax expense         10,610        12,033        10,610        12,033 
Depreciation and                                                            
 amortization             246,036       525,309     1,009,876     2,136,830 
Stock-based                                                                 
 compensation                                                               
 expense                   75,727       843,243     1,694,842     4,830,831 
Impairment of                                                               
 goodwill and                                                        
       
 intangible assets              -     7,477,832     4,205,000     7,477,832 
                     ------------  ------------  ------------  ------------ 
                                                                            
EBITDAS (Non-GAAP)   $ (3,294,756) $ (4,062,699) $(13,203,480) $(19,307,033)
                     ============  ============  ============  ============ 

 
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 September 30, 2013, total billings were
$7,069,180 and consisted of total net revenues of $6,251,325 adjusted
for an increase in deferred revenue of $817,855.  
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 September 30, 2013, negative EBITDAS
was $(2,171,517) and consisted of net loss as reported of
$(2,943,823) adjusted for net interest expense of $43,166,
depreciation and amortization of $216,571 and stock-based
compensation expense of $512,569.  


 
                                                                            
                    WAVE SYSTEMS CORP. AND SUBSIDIARIES                     
                        Consolidated Balance Sheets                         
                                (Unaudited)                                 
                                                                            
                                             December 31,     December 31,  
                                                 2013             2012      
                                            --------------   -------------- 
Assets                                                                      
Current Assets:                                                             
  Cash and cash equivalents                 $    2,120,102   $    2,112,769 
  Accounts receivable, net of allowance                                     
   for doubtful accounts of $-0- at                                         
   December 31, 2013 and 2012,                                              
   respectively                                  2,730,077        5,034,422 
  Pledged receivables                            1,683,188        1,801,683 
  Prepaid expenses                                 488,656          421,769 
                                            --------------   -------------- 
  Total current assets                           7,022,023        9,370,643 
  Property and equipment, net                      596,820          871,568 
  Amortizable intangible assets, net             2,590,920        4,028,333 
  Goodwill                                       1,448,000        4,038,000 
  Other assets                                     167,146          324,614 
                                            --------------   -------------- 
Total Assets                                    11,824,909       18,633,158 
                                            ==============   ============== 
                                                                            
Liabilities and Stockholders' Deficit                                       
Current Liabilities:                                                        
  Secured borrowings                             1,430,710        1,537,710 
  Accounts payable and accrued expenses          6,789,274        7,570,723 
  Current portion of capital lease payable               -           44,658 
  Deferred revenue                               6,996,239        5,949,087 
                                            --------------   -------------- 
  Total current liabilities                     15,216,223       15,102,178 
  Other long-term liabilities                       78,618           97,996 
  Royalty liability                              4,509,629        4,486,129 
  Long-term deferred revenue                     1,003,614        1,812,312 
                                            --------------   -------------- 
    Total Liabilities                           20,808,084       21,498,615 
                                            --------------   -------------- 
                                                                            
Stockholders' Deficit:                                                      
Common stock, $.01 par value. Authorized                                    
 150,000,000 shares as Class A; 35,019,740                                  
 shares issued and outstanding in 2013 and                                  
 26,251,968 in 2012                                350,197          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                 407,907,019      393,788,150 
Accumulated deficit                           (417,240,480)    (396,916,216)
                                            --------------   -------------- 
    Total Stockholders' Deficit                 (8,983,175)      (2,865,457)
                                            --------------   -------------- 
Total Liabilities and Stockholders'                                         
 Deficit                                    $   11,824,909   $   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 
investors@wave.com 
Investor Relations
David Collins, Eric Lentini
212-924-9800
wavx@catalyst-ir.com 
 
 
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