Replies to post #173976 on Wave Systems Corp. (fka WAVXQ)

[xxxxcslewis]

CTS,

I am simply unable to reconcile the whole situation.

Esign could be a part of it. A development contract yet to be performed could be part of it, though the reduction in force effort might undercut that possibility.

Steven often makes statements that become less and less clear the more you re-read them.

Yes, my conclusion has been 4000 units were shipped in Q3, but it is possible an additional quantity was perhaps paid for late in the quarter, recorded as deferred revenue, but not shipped in Q3.

I know this may be a hopeful, goofy conclusion. You are most likely right about the volume.

[xxxxcslewis]

CTS, just thinking out loud.

I can't seem to get past the Q3 deferred revenue increase and the flat upgrade volume. So here is the x upgrade theory.

At the beginning of 2008 a number of pilot implementations were launched and upgrade volume began. Those pilot implementations were paid for and the revenue from those sales recognized over the next 12 months. In Q1 upgrade volume was about 2,000 units. Additional pilot impementations continue in subsequent quarters.

Based on the pilot implementations some enterprises decide to transition to Wave's solution, replacing their existing security solutions.

The customer negotiates a price with Wave based on the volume of units the contract will cover and pays Dell in advance. Dell takes a cut and the rest flows through to Wave. The contract is recorded entirely as deferred revenue. Dell loads Wave's software at the factory and the customer pays Dell for the unit as they would normally.

Upon shipment by Dell, Wave begins to recognize the deferred revenue liability as sales revenue.

In Q3 deferred revenue increased by $461,000. Let's assume that represented initial deferred revenue of $600,000 but 25% of that revenue was recognized in Q3.

If the upgrades are priced at $50/ea, that would represent the purchase of 12,000 units in Q3. But in Q3 only 3,000 units of the 12,000 represented by the deferred revenue were shipped. That pretty much squares with the conference call comments and explains the increase in deferred revenue.

There may be holes in my theory.