I take "total operating expenses" from the Consolidated Statement of Operations in each quarterly release which I believe to be a reasonably accurate picture of cash out the door.

Yes, my method strives to capture operating cash flow.

I take the quarterly Dell revenue number and treat as 100% billings since it's all presumed to be in the small order class of software sales and is thus all taken as revenue in that quarter. That would not be the case if the number included orders in the large class but since it's assumed there were no large orders through Dell over the quarters stated that factor doesn't come into play.

Overs the Solms' quarters, taking the Dell quarterly revenue numbers, non-Dell billings have averaged $2.49m. I believe Safend had ranged approx. $1.2m-$1.8m over that time putting Safend at an avearge above 50% of non-Dell billings.

That is true, a billing taken in the quarter could equate to cash in the door subsequent quarters, however whether it's cash in the door that quarter or not it's still a useful indicator for measuring cash flow. If the cash doesn't come in that quarter it would reduce the quarter ending cash balance.

Thanks tkc, I see your point on that extraordinary interest expense in Q4 which should, other things being equal, reduce the Jan/Feb. burn rate to more like $1.2m/mo., raising the Feb.-ending cash estimate to $5.0m. "Other things being equal" includes the core SMB billings (both Safend and Embassy) remaining constant, of course if they uptick the Q4-based Q1 burn goes down or if they go down it goes up. Since the SMB billings have remained fairly constant since Solms took over, it's all up to the large enterprise orders to drive billings growth, his stated strategy.

I know it's not 100% accurate but billings (money-in-the-door) less operating expenses (money-out-the-door) does get reasonably close to a "cash flow" number (quarter-ending cash goes up or down). Btw sale of an asset e.g. eSign I treat as a separate event outside of what I could call cash flow from operations.

Thanks tkc...sorry but that's over my head lol.

Btw I got the Dell numbers from the 10Q's and since the Q4 2013 Dell number wasn't in the 10K, I used the 2013 total and deducted Q1, Q2 and Q3 to get Q4. Also I make the assumption that Dell revenues= billings which I believe is true because the only exception would be if there were large (5000 seats and higher) enterprise customer billings billed through Dell which I'm quite certain there were not in 2013.

I also made the assumption that the $.8m decrease in OEM bundling in the Q4 2014 release is all Dell.

Almost fully weaned off of Dell.

tkc, Dell has been dropping every q for many a moon. Perhaps the drop was more in Q4 than you anticipated. I may go through the 10k's the entire time Solms has been in and compare the Dell drop each q to the billings. I know it's been significant, swimming upstream with some modest upticks in enterprise billings along the way. I suspect the Dell downticks have played a significant role in the billings decreases Solms' entire tenure. In retrospect the Q4 decrease in billings comes as no surprise. Q1 will uptick, obviously.

I'm pretty sure you realize Q4 could be the last time those words apply.

awk, in some fairness to your man he did ultimately build the foundation of the opportunity that remains today, but the path to it was brutal.

awk, your man really was full of it.

Let's see.

He failed to deliver a large billing over a two year span, so he was fired, and that was for maintenance on existing licenses not a new customer.

He failed for almost eight years to deliver to market a deployable TPM solution, so he was fired.

He oversaw an operation whose projected cost of operations at the beginning of each year always far exceeded projected revenues leading to continuing dilution, so he was fired.

It goes on and on and on.

tkc, it appears they are nearly fully weaned off of Dell. Assuming all the $.8m OEM decline is Dell, Q4 Dell should be $460k based on Q3 being $1.26m. We'll know for sure in the 10Q.

The $0.5 million decline in total quarter-over-quarter billings from Q3 '14 consisted of an increase in licensing and maintenance net revenues of $0.3 million and a decrease of $0.8 million in OEM software bundling revenue.

The loss of Dell has continued to take it's toll on billings ever since Solms has been CEO, so that first large billing of $2.3m is significant coming as it did when Dell bundling revenue is on it's final stretch to zero.

tkc, thanks for that rundown.

Closing another large order in what remains of Q1 is the wild card.

With a stated strategy to focus on the large customer segment and having delivered but the first large order it's not unreasonable imo to be calling a merger with an OEM partner premature. Are we assuming the $2.3m order required a partner?

Imo it's worth staying tuned. I agree Wave has been "failing" for a long time always managing to stay afloat by selling stock, however this sale goes a considerable distance towards "keeping the ship from sinking", even further than what better management of resources has already done.

Any guess what the cash balance is today after the $2.3m billing? Imo high enough to suggest to prospective customers the company is able to achieve and maintain a level of financial stability. Another large order or two reasonably soon will further solidy that position.

I also noticed this:

Mr. Cheheyl served as Senior Vice President of Finance and Administration at Wellfleet Communications guiding that company's growth from $10 million in revenue to $500 million in four years.

And tkc, most of March remains.

I checked the 10Q and Dell Q3 was $1.26m and revenue should be the same as billings in that case. You're $750k estimate for Q4 could be in the ballpark.

I believe Solms is aware of the fact that the long and faithful who hold a significant portion of the float have their sights set a good deal higher than that and imo so does he. Whereas there is a great distance to travel from where it stands today he may look at a company like Vasco that has managed to carve out a sizable niche in a significant market and believe growth to such a level is not impossible.

I meant eSign SALE, not "sales". eom

zen, the eSign sales improved the Q4 cash balance by $1.2m. When we (me, tkc and alea) ran the Q4 cash burn the same as Q3's approx. $3m and deducted estimated Jan. operating expenses we came up with a cash balance after the $3.6m PP of $5-6m.

Assuming the same $3m burn for Q1, the $2.3m billing is a big chunk towards CFBE. Not revenues (unless Shepard takes the entire $2.3m billing as revenue as Q1 revenue) but billings cash-in-the door.

Hopefully Q4 has some upside in billings vs. Q3 but I wouldn't count on it. Presumably Dell continued to go down which means they had to uptick the SMB enterprise billings including consulting and services to make up the difference. If Solms can consistently deliver large billings going forward they will finally be weaned off of Dell.

The exiting of the Dell bundling has continued as a factor against billings increasing ever since Solms became CEO, something that Solms' staunchest critics don't always account for. Actually with the exception of a quarter or two he's been able to uptick the enterprise billings modestly to help offset Dell.

From the tone of your post it doesn't sound like you are assigning anything like progress to the $2.3m sale.

As far as the Thursday call it's a safe assumption that Q4 is similar to Q3 otherwise they wouldn't have done the $3.6m PP in January. I assume the market has already traded that into the stock. The big news is what the $2.3m billing does for Q1's CF, helps a lot obviously with the chance for another one before the end of the month making the quarter CFP discounting when a late March billing would come in the door. The call could reveal more details on the the sales pipeline. Now that Solms has taken existing products, improved them and delivered a large sale (presumably the largest ever for the DLP suite), whatever color he puts on the sales pipeline will have some credibility, at least more than if the $2.3m sales hadn't closed yet. His stated strategy is to focus on the large customer segment and he was able to deliver the first sale, the largest since the $1.7m maintenance billing Q4 '11 over three years ago.

Doesn't look like anyone is taking the new Intel video very seriously probably because it'll end up where most all of waves partnerships have found themselves in the garbage heap.

The point to a partnership and the video such as the Intel SSD one has nothing to do with us or other "observers" or the financial market "taking it seriously", instead it's the ability the alliance has to deliver enterprise customers to Wave and nobody hears about that until deals are done and even then it might not be clear if the customers came from the Intel channel. Imo Solms is attempting to enhance his OEM partnerships in order to bring enterprise customers into the sales pipeline, and the Intel video produced by Intel is an example of it.

The Sprague-led Wave blew their opportunity to extend large SED management customers past the Big Three. It eventually became clear the "Thailand floods" weren't the determining factor in the failure to deliver more large billings. It was other factors such as dwindling finances, lousy sales staff relations with prospective customers (e.g. Steven offending them) and probably the CEO's refusal to undercut the pricing of Wave's FDE competitors who developed SED support including WinMagic and others.

Solms is tasked with reviving Wave's SED management sales for which advertising and marketing play a role. I can't imagine a Spague-led Wave having the credibility to engage Intel in an SED marketing initiative including getting them to produce a video. Every little bit helps.

I doubt you are suggesting it's not worth Intel and Wave advertising their solution. They created something, and Intel perhaps with Wave's encouragement produced a video ad promoting it. I'm guessing Solms led the way on this pointing to their upwards of a million managed SEDs which shows some customer demand, so Intel went ahead with the production. Hopefully it will sell some ERAS-managed Intel SSD's.

The video is an advertising tool to increase sales.

Increasing sales is all that matters.

Agreed.

In retrospect the biggest mistake I made with Wave once transition to supporting the TCG model was complete was not smelling organizational issues when it kept going a year between large orders. The first GM sale folowed by the other GM sale a year later...a year later BASF...a year later BP. Easy to keep the faith when GM buys $10.9m of software! There were limitations with the SED management solution such as the customer needing a laptop refresh buy cycle to get the SEDs and incumbent FDE software vendors building support, but in retrospect with a different CEO, a different etc., Wave probably would have done better with the opportunity not to mention going to market a lot sooner with a deployable TPM solution.

Actually I was pushing years ago for the company to design real-world solutions for which there was demand in the existing enterprise marketplace, meaning build a TPM solution that was easy to deploy and manage, a competitor to deployed solutions such as authentication tokens. I could provide an e-mail where to a Wave executive I assert that tokens are TPMs' biggest competition and to which the response was "no we aren't competing against tokens". Several years later we are competing against tokens.

Once TPMs and SEDs came onto to the scene it wasn't the genius theory for me, it was build products to suit demand. Demand in the marketplace equates to deployed solutions.

alea we agree nearly 100%.

Solms would not have put the resources into further development of VSC if he did not see the demand present in the enterprise authentication marketplace for a better more cost-effective solution. All solution designers need to percieve demand or potential demand otherwise there's no point in acting.

So I think Solms has a better chance of success than his predecessor. Because he has adopted a demand-side model. Having said that, he seems to be having a difficult time enticing customers. So there's clearly plenty of resistance to tpms whoever is in charge and whatever they do.

Based on comments in the Q3 call including those below it sounds a good deal like VSC 2.0 is enticing customers and since that was approaching four months ago, 10 gets you 1 the number has grown significantly past 100. We are still waiting for the first big VSC PO to arrive, however I am not betting against it coming.

Currently we have, you know, somewhere in the range of 100 virtual smart card opportunities that we’re pursuing in various stages. The interesting thing about that is that’s not cannibalizing off of other products and services that we would have been selling. That’s all additive to what we already have been doing as a business, and on top of that you know, with this increased marketing campaign that we’ve just done, we’re really looking to drive up the demand generation for that product in particular.

BF, fair enough and agreed.

I agree with dig's point that Wave's DLP portfolio is a step below their premium products (e.g. ERAS-managed) in terms of pricing as well as not being as disruptive to the market as TPM-based solutions potentially are, however the DLP suite may have hardware root-of-trust (TPMs and SEDs) integration capabilities which could become an additional differentiator moving forward.

BF, when the first large VSC deal breaks there may be a way to put a lesser light on it too.

It could be the market recognizes that without another large billing before the end of March that the specter of dilution could once again raise it's ugly head. In Wave's past only large enterprise billings have been the mitigating factor against continuing dilution.

Solms' stated strategy is the large customer segment, large billings.

Good point about Solms identifying demand before customers start buying. The call may be wrong but it does take knowledge of the products and the marketplace to risk making it in the first place. In Solms' case he recognized Wave's core TPM IP (e.g. ESC/ERAS) and the potential to replace widely deployed enterprise authentication solutions in the marketplace with a solution that is both more secure and has an ROI over incumbent solutions. Still waiting for the first big customer VSC deal but from the sounds of it in the last couple CC's the pipeline is real. Fwiw I find his talk more believable than his predecessor's.

Yesterday is initial validation of Solms' strategy of taking existing products where in the case of the Safend portfolio there had (presumably) not been a licensing deal as large as yesterday's, and re-vamping them into "large customer"-deployable products. Hopefully the strategy works for VSC. It took eight months of engineering to tweak VSC v1.0 into v2.0. Hopefully it pays off.

A newcomer to WAVX, a buyer under a buck (or better yet .65), and a "demand-sider".

Impossible to be all three at the same time.

Here is what they are buying. Originally Safend products. The data sheets for both were updated less than three weeks ahead of the VSC 2.0 launch. Solms was busy from the time he took over updating all products so they were more saleable to large customers, not just SMB. Apparently this is the first visible result.

http://www.wave.com/products/wave-protector

http://www.wave.com/products/wave-reporter

My point on VSC is that imo we will see an maiden large order for it, not necessarily the same major insurance company customer though.

In a day and a half's time, Wave will be 2/3 of the way through Q1--and the real indicators of progress are still elusive, IMO. Not yet has Wave managed to wrangle a significant sale into its corral in the entirety of Bill Solms's reign of about a year and a half.


That just changed BF. And that was Protector/Reporter. VSC is next. I'll bet on it.

Wave Systems Corp. received a $2.3 million, multi-year order from a major, US-headquartered insurance company for over 250,000 licenses of both Wave Protector and Wave Reporter.

http://biz.yahoo.com/e/150225/wavx8-k.html

BF, you are welcome.

Consider that the Bell ID EMV initiative, even with a signed definitive agreement between the partners is not likely to be an immediate revenue producer. You see, it requires TPMs in scale on consumer PCs which does not yet exist. I believe beginning Jan. 2015 MS requires TPMs to ship on all Windows devices whereas prior to that OEMs had been putting them on enterprise models only. So it will take some time for TPMs to saturate the consumer PCs the EMV opportunity requires.

While the EMV opportunity is a potential source of significant revenue, imo the Micron initiative could be much larger but as with EMV it will take time. Once the Wave/Micron solution is commercially available though, there could be an immediate enterprise market because TPMs are already present.

Really, the VSC opportunity is far more immediate than Bell ID which is why I am not concerned about the missed timeline and don't think it has any real impact on Solms' or Wave's credibility.

BF, here's the rebuttals you requested after all. Hope they are of some value to the reader.


Root: You got me wrong on this one. My message to Solms would be, don't say anything, unless you have it locked down, dead away and in the bag.

As far as "saying something" it definitely would be a poor move for the CEO to not state early in his tenure the goal of BE/profitability.


If a CEO says something outside the official CCs about something that is allegedly going to happen, then he should explain it, outside the official CCs if it doesn't happen. Pretty simple.

Did he say something, anything outside of the CC's?


You state the $3.6M PP is what caused the SP to decline. I partially agree with you. But why did we need a PP? Because Solms was unable to deliver on the sales he thought he could bring in.

Imo he still thinks he can bring them in.


No I don't want Solms to use his mouth to fix anything. I want him to either quit making public goals with timelines, or if he does, either hit the goals, or explain why they were missed. Isn't that the fair thing to do?

Solms barely if at all stated a timeline for BE in public. I conceded the quote that player provided from the Q3 call, however upon reviewing again the reference to his plan in the opening remarks I have now concuded that "goal for this year" could been words mistakenly used a misleading way ie. he could have meant to say "the goal I set this year" and that when the questioner later prefaced his question with that Solms "earlier stated the 2014 goal" (in his opening remarks when in fact he didn't state a date), then Solms went along with questioner's mention of the date. Why would he refuse to disclose a target date when questioned in the Q1 call in May if he intention was to commit to one later? Imo he still didn't want to say a date in the November call but the wording by the questioner led to him acknowledging it.


I think, unconsciously, you may be making excuses for the failures on all of Solms's publicly stated goals. He was the one who set the goals--shouldn't he also be the one to explain if Wave falls short?

Per above Solms deliberately didn't commit to a BE date until the Q3 CC slip-up above. He goal is still valid imo so no need for me to make excuses for a missed timeline, especially when it was Solms' best intent to not issue one.


Do you think what he did--sending out a cowardly message via David Collins that Wave will need another six months to gain traction is acceptable? That came outside the official CCs and if true, is a pretty big change in expectations for Wave. That, after all the big statements he made about seeing signs of a 2014 turnaround, Bell-ID (August), standby for big announcements? Does any of that strike you as being accountable?

What else is IR for if not for issuing a message following an event like a PP? Have you considered what the cost could be to Wave's appearance to large customers considering doing business with the company if public explanations and excuses are issued on matters relating to financial status and performance?


Setting unrealistic goals and missing them was the hallmark of the SKS-led Wave. No explanations were provided under SKS, either. So, why is Solms following this broken and disgraced model?

I don't consider Solms' stated goal of BE/profitability (with no committment to a timeline) to be unrealistic. His best course of action is to continue building the organization to achieve the goal and avoid making public statements around it other than what can be provided in a next CC.


Lastly, you ask if I think it is a good idea for the CEO to make public statements...to rationalize delays? No, a better way is to either keep quiet, or hit your targets. If you miss, be a man and tell us why.

Did I suggest the CEO make public statements outside of his CC's or did he do so?


I have already speculated on what I think are the reasons for Wave missing every single one of Solms's stated "goals." I think the truth is Wave's products are the crapware they have been labeled and if he told the truth, it would kill Wave.

I disagree that Wave's products are junk. Wave has SMB sales for annual totals that many companies don't attain, however sales aren't currently sufficient to carry the size company Wave is. Solms's stated strategy is take his most disruptive core IP ie. TPM-based solutions and successfully market them to the large customer segment which is a complex challenge including requiring about 8 months to re-engineer VSC into a large customer-saleable solution.


That's why I think he's in hiding. He had all these lines in the water and not a single bite. I think he was stunned by the nothingness his new sales team gathered after re-focusing, and re-jiggering the product.

Solms is not in hiding, imo he's working hard to drive Wave to it's goals. He's doing the correct thing by not making any kind of excuses in public, and it's too early to tell if the re-vamped products and sales teams are a failure.


You, on the other hand seem to be OK with constantly expanding timelines (sound familiar?) and no results. It appears you are OK with missing goals with no explanations. I'm not. And not that you need reminding, that is how we got here in the first place--tolerating missed timelines and no results. That is exactly what got SKS fired.

"Results" also include items that precede an increased sales bottom line, items such as better cost controls, re-engineered products, a re-staffed company including key hires and fires, selling a non-core/non-peforming asset, mothballing science projects, and building a large customer sales pipeline. Apparently you are of the persuasion that large customer deals are expected to close within 2 1/3 quarters of a product launch when large customer sales cycles can be as long as approx. 6 quarters. Not making excuses for Wave, just trying to keep expectations in line with reality. I already conceded in an earlier discussion my concerns too will increase as the more time passes without getting a large customer closing, however it's still early imo to call prospects dropping out of the large customer pipeline.


I was hoping for both a different approach and better results under Solms.

I see a better approach already, with results as well.

You are welcome BF. Let's hope we get some billings-bearing news ahead of either of those events. That will change everything.

BF, agreed re: mudslinging (eom)

Root, I would urge you, based on this company's truly bad history--to not let anything go on beyond a stated time. If the CEO says CFBE by end of 2014, he should either hit the mark, or, if not--then explain why he didn't hit the mark.


And what words would you suggest be used? You actually think it's a good idea for a CEO to make public statements between conference calls to rationalize delays? Better to produce results and announce them when they happen than to makes excuses in public.

The need for the $3.6m PP is what caused the SP to decline, nothing Solms said in the Q3 call, nor anything he could have said publicly since would have changed the outcome or will going forward, only billings can.

It seems you want Solms to use his mouth to try to fix things as Sprague always did.

No, by pre-selling I am referring to PP participants shorting against their shares.

My best guess is the deal began being arranged sometime in December or early Jan. ie. as much as two months after the CC.

I'm not sure but the SP usually begins to erode once talks begin to arrange a placement or sooner if there is a concern there will be one. A month after the CC? Once the deal is set, participants often short against it.

The cause of the stock decline was pre-selling the PP. With higher billings in Q4 it wouldn't have been necessary.

I agree with a lot of what you say except the share price part. That is where it is because cash ran down, not because of anything Solms said (imo). Maybe I misunderstood you, but "stand by for announcements" or not, the billings weren't enough so there was a PP. Again, my opinion.

In any case, I'm inclined to agree the "stand by for announcements" was not ideal. I still take it though as a message being put across that deals look strong to close, not if but when. He's the CEO so he's in a better position to weather missing his timeline than the sales associate in your example.