Wave Reports Q3 Net Revenues of $4.3M

LEE, MA--(Marketwired - Nov 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:

• Partner News: Micron Technology, Wave Systems, Lenovo and American Megatrends Inc. Announce Intention to Create New Industry Standard to Meet Heightened Global Security Requirements
• Wave Systems Completes Sale of eSignSystems for $1.2M
• Gartner Positions Wave Systems as Visionary in 2014 Magic Quadrant for Mobile Data Protection
• Wave Systems Announces First U.S. Federal Government Customer for Wave Virtual Smart Card 2.0

About Wave Systems
Wave Systems Corp. reduces the complexity, cost and uncertainty of authentication and 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.

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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

Wave Systems Corp.
Walter A. Shephard
CFO
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Investor Relations
David Collins, Chris Eddy
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