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Friday, 11/09/2012 4:04:47 PM

Friday, November 09, 2012 4:04:47 PM

Post# of 249121

WAVX) today reported financial results for
its third quarter ended September 30, 2012 (Q3 '12) and highlighted
recent progress and new product launches.

Wave reported total net revenues of $7.0 million for Q3 '12, including
$1.5 million in licensing revenues from its Safend subsidiary, and
services revenue of $40,000 from the final billing of a government
contract. Wave's Q3 '11 total net revenues were $9.5 million, including
$156,000 in revenues from Safend, which was acquired in late September
2011, and $274,000 in services revenue related to a government contract.
The year-ago third quarter also benefitted from approximately $2 million
in additional revenue related to two "large" enterprise-customer upgrade
sales recorded ratably during 2011. Total net revenues in Q2 '12 were
$7.8 million.

Wave's Q3 '12 and year-to-date results reflect lower levels of OEM
bundling revenue resulting from both lower PC shipment volumes as well as
revisions to the Company's royalty rates starting in November 2011 which,
on a blended basis, have reduced per-unit revenues. In aggregate, Q3 '12
was impacted by a $1.6 million decrease in OEM royalties versus the prior
year period, and since the beginning of 2012 Wave's OEM bundling revenue
has declined by $3.2 million versus a year ago, providing another
headwind in year-over-year comparisons.

Total billings declined to $6.1 million in Q3 '12, compared to $6.4
million in Q3 '11 and $6.9 million in Q2 '12. Total billings for Q3 '12,
Q3 '11 and Q2 '12 included $1.3 million, $143,000 and $1.4 million,
respectively, from Safend.

Wave's Q3 '12 combined SG&A and R&D expenses declined to $12.6 compared
to $13.7 million in Q2 '12 but rose over Q3 '11 expenses of $10.9
million. The year-over-year increase in SG&A and R&D expenses reflects
expanded staffing in engineering, sales & marketing and administration,
principally due to the addition of approximately 60 team members and
related overhead resulting from the Safend acquisition. The increased
staffing & expenses support a broader base of OEM relationships, growth
in the prospective customer base and pipeline of order opportunities on a
global basis and investments in the development of new products and
product capabilities.

Wave recorded a Q3 '12 net loss of $6.1 million, or $0.06 per basic and
diluted share, as compared to a Q2 '12 net loss of $6.5 million, or $0.07
per basic and diluted share and its Q3 '11 net loss of $1.8 million, or
$0.02 per basic and diluted share. Per share figures are based on a
weighted average number of basic shares outstanding during Q3 '12, Q3 '11
and Q2 '12 of 98.0 million, 83.7 million and 92.5 million, respectively.

In order to highlight its operational performance on a cash-flow basis,
Wave reports EBITDAS, a non-GAAP measure defined as earnings before
interest income (expense), income taxes, depreciation and amortization
and stock-based compensation expense. Wave recorded negative EBITDAS of
$4.2 million in Q3 '12, compared with negative EBITDAS of $0.3 million in
Q3 '11 and negative EBITDAS of $4.6 million in Q2 '12.

As of September 30, 2012, Wave's total current assets were $6.5 million
and total current liabilities, including the current portion of deferred
revenue of $4.5 million, were $12.6 million. Cash and cash equivalents
were $2.2 million at September 30, 2012, as compared to $1.6 million at
June 30, 2012.

Wave continues to utilize a variety of approaches to fund its operations,
including active working capital management methods, a receivables
financing relationship to monetize its largest receivables and common
stock sales. During Q3'12, Wave completed the sale of 2.6 million shares
of Class A common stock at $0.6425 per share, yielding net proceeds of
approximately $1.5 million. Purchasers also received warrants to purchase
up to 1.3 million shares of Class A common stock at $0.58 which expire in
August 2017. In October (Q4 '12), Wave raised approximately an additional
$3.1 million in net proceeds through the sale of 3.3 million shares of
Class A common stock at $1.0025 per share. Purchasers also received
warrants to purchase up to 1.7 million shares of Class A common stock at
$0.94 which expire in October 2017. Both of these private placements were
pursuant to Wave's effective shelf registration statement.

Also during Q3 '12, Wave raised net proceeds of approximately $3.6
million through the issuance of approximately 4.0 million shares of its
Class A common stock at an average price of $0.93 per share through its
At The Market (ATM) structure. Since the end of Q3 '12, shares sales
through the ATM raised additional net proceeds of approximately $0.3
million at an average price of $0.99. Since the ATM's inception in
January 2012, Wave has raised total net proceeds of $9.1 million through
the issuance of 7.9 million shares of Class A common stock at an average
price of $1.18 per share. The share sales are completed at market prices,
with a 3% commission and without any warrant issuance.

CEO Commentary:
"During the third quarter, sales fell short of
expectations due to challenges in completing enterprise deals, as well as
a lower level of OEM bundling revenues. Our performance has prompted a
'redoubling' of efforts to bring sales in the pipeline to fruition in the
current quarter as well as expanded efforts at developing new
opportunities," commented Wave CEO Steven Sprague. "In light of our sales
results, we've also taken a closer look at ways to curtail expenses,
realizing a $1.2 million reduction in operating expenses in Q3 versus Q2
and a $2.2 million reduction versus Q1 of this year.

"Nonetheless, we remain optimistic about the future and our prospects in
this growing market. As anticipated, Wave released several new products
and product enhancements during the third quarter, including Wave Cloud,
a SaaS (software as a service) offering that provides central management
for hardware-based endpoint encryption, and Wave Endpoint Monitor, a
first-of-its-kind solution that detects malware threats in the 'pre-boot'
mode. We believe these new capabilities extend our leadership position in
the Trusted Computing space at a time when Trusted Computing capabilities
are receiving global visibility through the launch of the Windows 8
operating system across PCs, tablets and mobile devices.

"We view Windows 8, which utilizes industry standard hardware to deliver
a range of convenient and secure new features, as a validation of the
benefits of Trusted Computing and Wave's solutions. Wave is uniquely
positioned to support Windows 8 deployments via server-based or cloud
management solutions, as well as to deliver a range of Windows 8
capabilities to enterprise customers running Windows 7 and earlier
versions. Though Trusted Computing is based on industry-standard hardware
used to protect your identity, the powerful user benefits are ease of
use, ease of connection, and ease of access to the critical data that you
need to do your job; it just works. Further, by building these
capabilities on top of Trusted Computing hardware now being deployed
across PCs, tablets and mobile devices via Windows 8, governments,
enterprises, and even individuals, are able to benefit and manage all of
their devices using one solution."

"As the mobile security space continues to expand -- especially with the
rising use of consumer smartphones in the enterprise, in mobile commerce
and for sensitive applications -- Wave has taken a leadership role in
promoting the adoption of hardware-based industry standards for greater
security. Last quarter, Wave announced its inclusion in the influential
ARM TrustZone Ready Program, whose partners have pledged to help chipset
vendors design and integrate Trusted Computing hardware features in the
chipsets they are building today.

"We are making great progress with scrambls to address security issues
posed by the rising use of Cloud storage services in the enterprise as
well as the evolution of social media into a tool increasingly used by
businesses for the dissemination of critical information. We see strong
interest within the corporate environment for solutions that enable the
safe sharing of files and communications over the Internet and social
media."

Recent News and Developments


-- Wave launched several significant products in Q3, including Wave
Cloud, which provides central management for hardware-based endpoint
encryption, and Wave Endpoint Monitor, the first-ever solution using
industry standard hardware to detect malware and other threats at the
BIOS level.
-- Wave outlined unique Trusted Platform Module (TPM) management
capabilities within its upcoming version of EMBASSY Remote
Administration Server (ERAS), including the ability to secure
credentials in hardware for DirectAccess deployments and to use a TPM
as a Virtual Smartcard.
-- Gartner, the world's leading IT research and advisory firm, elevated
Wave to the "Visionary" section of its Mobile Data Quadrant.
-- SC Magazine awarded Wave's flagship server, ERAS, a four and 1/4 star
rating in its group endpoint encryption review.
-- Wave received broad media coverage discussing the Trusted Computing
capabilities and significance of the Windows 8 launch across PCs,
tablets and mobile devices: Forbes, eWeek, PC Magazine,
ComputerWeekly, Redmond Magazine.
-- Wave joined the ARM TrustZone Ready Enablement Program to provide
support and infrastructure for implementing enterprise security
capabilities in mobile devices.



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 respective owners.

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)

Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2012 2011 2012 2011
------------- ------------- ------------- -------------
Net revenues:
Licensing $ 6,930,724 $ 9,259,722 $ 20,950,093 $ 24,617,967
Services 39,539 274,416 763,781 486,533
------------- ------------- ------------- -------------
Total net
revenues 6,970,263 9,534,138 21,713,874 25,104,500
------------- ------------- ------------- -------------

Operating
expenses:
Licensing -
cost of net
revenues 395,188 459,002 1,317,055 1,139,943
Services - cost
of net
revenues 7,521 28,122 144,111 102,169
Selling,
general, and
administrative 7,847,873 7,021,658 26,246,347 19,304,601
Research and
development 4,793,453 3,869,833 14,861,557 10,717,346
------------- ------------- ------------- -------------
Total operating
expenses 13,044,035 11,378,615 42,569,070 31,264,059
------------- ------------- ------------- -------------
Operating loss (6,073,772) (1,844,477) (20,855,196) (6,159,559)
------------- ------------- ------------- -------------
Other income
(expense):
Net currency
transaction
gain (loss) 1,965 - 11,753 231,368
Net interest
expense (36,685) (1,074) (99,294) (3,128)
------------- ------------- ------------- -------------
Total other
income
(expense) (34,720) (1,074) (87,541) 228,240
------------- ------------- ------------- -------------
Net loss $ (6,108,492) $ (1,845,551) $ (20,942,737) $ (5,931,319)
============= ============= ============= =============

Loss per common
share - basic
and diluted $ (0.06) $ (0.02) $ (0.22) $ (0.07)

Weighted average
number of common
shares
outstanding
during the
period 97,987,172 83,680,753 93,585,723 82,929,284

WAVE SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Supplemental Schedules
(Unaudited)

Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2012 2011 2012 2011
------------- ------------- ------------- -------------

Total net
revenues $ 6,970,263 $ 9,534,138 $ 21,713,874 $ 25,104,500
Increase
(decrease) in
deferred revenue (884,795) (3,182,659) (1,900,663) (3,823,218)
------------- ------------- ------------- -------------

Total billings
(Non-GAAP) $ 6,085,468 $ 6,351,479 $ 19,813,211 $ 21,281,282
============= ============= ============= =============

Net loss as
reported $ (6,108,492) $ (1,845,551) $ (20,942,737) $ (5,931,319)
Net interest
expense 36,685 1,074 99,294 3,128
Depreciation and
amortization 539,001 177,933 1,611,521 438,794
Stock-based
compensation
expense 1,343,510 1,355,100 3,987,588 3,938,605
------------- ------------- ------------- -------------

EBITDAS (Non-
GAAP) $ (4,189,296) $ (311,444) $ (15,244,334) $ (1,550,792)
============= ============= ============= =============



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 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
(Unaudited)

September 30, December 31,
2012 2011
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 2,163,046 $ 3,385,035
Accounts receivable, net of allowance for
doubtful accounts of $-0- September 30,
2012 and December 31, 2011 2,640,528 7,198,645
Collateralized receivables 795,416 -
Prepaid expenses 886,919 823,761
------------- -------------
Total current assets 6,485,909 11,407,441
Property and equipment, net 983,920 1,236,844
Amortizable intangible assets, net 9,711,906 10,925,306
Goodwill 6,216,059 6,216,059
Other assets 325,393 336,607
------------- -------------
Total Assets 23,723,187 30,122,257
============= =============

Liabilities and Stockholders' Equity
Current liabilities:
Secured borrowings 672,107 -
Accounts payable and accrued expenses 7,366,079 6,701,026
Current portion of capital lease payable 63,197 72,074
Deferred revenue 4,484,362 6,619,257
------------- -------------
Total current liabilities 12,585,745 13,392,357
Long-term portion of capital lease payable - 44,659
Other long-term liabilities 93,969 66,283
Royalty liability 4,116,656 4,043,163
Long-term deferred revenue 1,194,152 1,035,220
------------- -------------
Total liabilities 17,990,522 18,581,682
------------- -------------

Stockholders' Equity:
Common stock, $.01 par value. Authorized
150,000,000 shares as Class A; 100,999,248
shares issued and outstanding in 2012 and
89,574,385 in 2011 1,009,992 895,744
Common stock, $.01 par value. Authorized
13,000,000 shares as Class B; 35,556 shares
issued and outstanding in 2012 and 2011 355 355
Capital in excess of par value 388,618,723 373,598,144
Accumulated deficit (383,896,405) (362,953,668)
------------- -------------
Total Stockholders' Equity 5,732,665 11,540,575
------------- -------------
Total Liabilities and Stockholders' Equity $ 23,723,187 $ 30,122,257
============= =============





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