Wave Q2 Software Licensing Net Revenues Rose 31% to Record $8.1M

LEE, MA, Aug 09, 2011 (MARKETWIRE via COMTEX) –Wave Systems Corp. /quotes/zigman/102385/quotes/nls/wavx WAVX +1.14% , a leading provider of trustedcomputing software, today reported financial results for its secondquarter (Q2) and six months ended June 30, 2011.

Wave’s Q2 ’11 total net revenues rose 26% to $8.1 million compared to$6.4 million in Q2 ’10, and rose 8% over Q1 ’11 total net revenues of$7.5 million. the increase in total net revenue was primarily theresult of a more than $2 million year-over-year increase inenterprise server software licensing revenues which more than offseta $0.2 million decrease in services revenue related to a U.S.Department of Defense contract that was completed in Q1 2011. Wave’slicensing net revenues grew 31% in Q2 ’11 versus Q2 ’10 and increased11% over Q1 ’11. Q2 ’11 licensing net revenues included approximately$435,000 of enterprise server licensing revenue as a result of Waveachieving vendor specific objective evidence (VSOE) in Q1 ’11 for thefair value of the maintenance component of Wave’s software licenseagreements within its “small” customer class (orders of less than5,000 licenses). having achieved VSOE for its “small” customerenterprise orders, Wave was able to record as earned licensingrevenue the full value of the license component of such contractsduring the quarter in which the orders were fulfilled. for its”large” customer class (orders of 5,000 or more licenses) where VSOEhas not yet been achieved, Wave continues to recognize the totalbilled for these license agreements as earned revenue ratably overtheir maintenance term which is typically twelve months.

Principally reflecting a $3.5 million enterprise order with BASF SEfulfilled on May 3, 2011, Q2 ’11 total billings rose 48% to $9.4million as compared to $6.3 million in Q2 ’10, and rose 68% over Q1’11 total billings of $5.6 million. the BASF order is a “large” classorder and, as a result, Wave is recording the $2.8 million oflicensing sales and initial maintenance for the period ended December31, 2011 as earned revenue ratably in Q2 and over the remainder of2011. the contract balance of approximately $700,000 is for the 2012maintenance term and will be recognized ratably during 2012. BASF maycancel the 2012 maintenance renewal at any time prior to December 1,2011. Total net revenues are reconciled to total billings below.

During Q2 ’11 Wave continued to invest aggressively in both sales andmarketing and R&D initiatives aimed at expanding Wave’s salespipeline and product portfolios while continuing to promote globalawareness of the benefits of trusted computing solutions. Inaggregate, SG&A and R&D expenses rose by approximately $0.4 millionor 4% over Q1 ’11 levels and by approximately $2.8 million or 41%over Q2 ’10. Wave has steadily increased its investment over the pastthree quarters in additional sales, marketing and engineeringpersonnel and resources to support continued development of OEMengagements with Wave solutions, increased direct-sales activity withenterprise and government prospects and expanded development focusedon new product features.

as a result of increased personnel and higher fair value calculationsfor stock options awarded primarily during Q1 ’11, Wave’s non-cashstock-based compensation expense increased 77% to $1.4 million in Q2’11 as compared to $0.8 million in Q2 ’10 and increased 16% ascompared to $1.2 million in Q1 ’11. Wave views stock-basedcompensation as an important component of its employee recruitmentand retention strategy.

Reflecting higher revenues and a modest currency translation gain ona large enterprise order, offset by an increase in operatingexpenses, Wave recorded a Q2 ’11 net loss of $1.8 million, or $0.02per basic and diluted share, compared with a Q2 ’10 net loss of $1.0million, or $0.01 per basic and diluted share. Wave’s Q1 ’11 net losswas $2.3 million, or $0.03 per basic and diluted share. Per-sharefigures are based on a weighted average number of basic sharesoutstanding during Q2 ’11 and Q2 ’10 of 83.0 million and 80.3million, respectively, and 82.2 million in Q1 ’11.

Wave recorded negative EBITDAS of $0.3 million in Q2 ’11 compared tonegative EBITDAS of $0.1 million in Q2 ’10 and negative EBITDAS of$0.9 million in Q1 ’11. Wave reports EBITDAS, a non-GAAP measuredefined as earnings before interest income (expense), income taxes,depreciation and amortization and stock-based compensation expense,in order to highlight its operational performance on a cash-flowbasis. a reconciliation of net loss to EBITDAS is below.

Wave’s cash position showed further improvement in Q2 ’11 principallydue to the receipt of $3.8 million (adjusted for currencytranslation) for an enterprise order. as of June 30, 2011, Wave’scash and cash equivalents rose to $10.9 million as compared to $9.7million at March 31, 2011 and $3.6 million at December 31, 2010. Asof June 30, 2011, Wave’s total current assets were $14.8 million andtotal current liabilities — including $7.8 million of deferredrevenue — were $11.6 million.

“Throughout Q2, there were a number of high-profile network and databreaches on the global stage. the most significant of these was thecompromise of a leading security token solution relied upon by alarge number of Fortune 500 enterprises,” commented Steven Sprague.”As these kinds of events continue to occur and receive broad mediaattention, we have seen an increase in interest and activity intrusted computing solutions.

“On the financial side, I’m pleased to report that we once againextended our track record of year-over-year and sequential quarterlygrowth in the second quarter. given the new global focus on cybersecurity and related concerns over the efficacy of proprietary,software-only solutions, we’ve chosen to expand our investments inmaintaining our leadership position in the trusted computing space ata time when we believe that many governments and enterprises arere-examining their network and data security protocols. we believethat there will continue to be receptivity to new approaches tosecurity, such as those offered by Wave.

“But there remains much work to be done in communicating the securityand ROI benefits of ‘off the shelf’ trusted computing solutions. Weare deploying substantial resources in sales and marketing to helppromote this message internationally, with a particular focus onNorth America and on expanding our presence in the EMEA regions. Inaddition, Wave will participate in the 2nd Annual NSA TrustedComputing Conference and Exposition September 20-22 in Orlando, FL, aforum sponsored by the NSA to educate public and private sector ITprofessionals on trusted computing solutions and how they are beingused with success.”

Summary of recent Progress/Developments:

— BASF Selects Wave in $3.5 Million Agreement to Protect Sensitive Data on Corporate Laptops. (April 2011) — Wave Releases EMBASSY(R) Protector. Designed to stop information leakage through endpoints and removable media, this addition to the EMBASSY line monitors real-time traffic and applies customized, granular security policies over all physical, wireless, and storage interfaces. (July 2011) — Northern Health and Social Care Trust of Northern Ireland selected self-encrypting drives (SEDs) managed by Wave to protect personal health information on laptops. Northern Trust cited lower upfront costs, faster deployment time and lower total cost of ownership in their selection. (May 2011) — Wave Issues Guidance for Organizations Concerned with the Vulnerability of Authentication Tokens. Wave highlighted how incorporating device identity — in addition to user identity — can serve as a second layer of defense against cyber-attack. the Trusted Platform Module (TPM), with its ability to create, sign and store keys, is uniquely suited for this function. (June 2011)

About Wave Systems Wave Systems Corp. /quotes/zigman/102385/quotes/nls/wavx WAVX +1.14% reduces thecomplexity, cost and uncertainty of data protection by startinginside the device. unlike other vendors who try to secure informationby adding layers of software for security, Wave leverages thesecurity capabilities built directly into endpoint computingplatforms themselves. Wave has been a leading expert in this growingtrend, leading the way with first-to-market solutions and helpingshape standards through its work as a board member for the TrustedComputing Group.

Safe Harbor for Forward-Looking Statements This press release maycontain forward-looking information within the meaning of the PrivateSecurities Litigation Reform Act of 1995 and Section 21E of theSecurities Exchange Act of 1934, as amended (the Exchange Act),including all statements that are not statements of historical factregarding 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 thecompany’s financial condition or results of operations; (iii) thecompany’s growth strategy and operating strategy; and (iv) thedeclaration and payment of dividends. the words “may,” “would,”"will,” “expect,” “estimate,” “anticipate,” “believe,” “intend” andsimilar expressions and variations thereof are intended to identifyforward-looking statements. Investors are cautioned that any suchforward-looking statements are not guarantees of future performanceand involve risks and uncertainties, many of which are beyond thecompany’s ability to control, and that actual results may differmaterially from those projected in the forward-looking statements asa result of various factors. Wave assumes no duty to and does notundertake to update forward-looking statements.

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WAVE SYSTEMS CORP. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) three months ended six months ended June 30, June 30, June 30, June 30, 2011 2010 2011 2010 ———– ———– ———– ———– Net revenues: Licensing $ 8,094,126 $ 6,201,955 $15,358,245 $11,895,475 Services – 246,719 212,117 422,626 ———– ———– ———– ———– Total net revenues 8,094,126 6,448,674 15,570,362 12,318,101 ———– ———– ———– ———– Operating expenses: Licensing 382,060 292,413 680,941 494,538 Services – 166,728 74,047 316,263 Selling, general, and administrative 6,222,036 4,575,509 12,282,943 8,665,635 Research and development 3,548,726 2,376,690 6,847,513 4,563,999 ———– ———– ———– ———– Total operating expenses 10,152,822 7,411,340 19,885,444 14,040,435 ———– ———– ———– ———– Operating loss (2,058,696) (962,666) (4,315,082) (1,722,334) ———– ———– ———– ———– Other income (expense): Currency translation gain 231,368 – 231,368 – Net interest expense (753) (4,208) (2,054) (8,716) ———– ———– ———– ———– Total other income (expense) 230,615 (4,208) 229,314 (8,716) ———– ———– ———– ———– Net loss $(1,828,081) $ (966,874) $(4,085,768) $(1,731,050) =========== =========== =========== =========== Loss per common share – basic and diluted $ (0.02) $ (0.01) $ (0.05) $ (0.02) Weighted average number of common shares outstanding during the period 82,939,649 80,302,956 82,547,321 78,753,340 WAVE SYSTEMS CORP. AND SUBSIDIARIES Consolidated Supplemental Schedules (Unaudited) three months three months ended six months ended ended June 30, June 30, June 30, June 30, March 31, 2011 2010 2011 2010 2011 ———– ———– ———– ———– ———– Total net revenues $ 8,094,126 $ 6,448,674 $15,570,362 $12,318,101 $ 7,476,236 Increase (decrease) in deferred revenue 1,258,300 (119,115) (640,559) (361,838) (1,898,859) ———– ———– ———– ———– ———– Total billings (Non-GAAP) $ 9,352,426 $ 6,329,559 $14,929,803 $11,956,263 $ 5,577,377 =========== =========== =========== =========== =========== Net loss as reported $(1,828,081) $ (966,874) $(4,085,768) $(1,731,050) $(2,257,687) Net interest expense 753 4,208 2,054 8,716 1,301 Income tax (benefit) expense – - – - – Depreciation and amortization 137,053 122,957 260,861 191,141 123,808 Stock-based compensation expense 1,389,622 786,729 2,583,505 1,359,892 1,193,883 ———– ———– ———– ———– ———– EBITDAS (Non-GAAP) $ (300,653) $ (52,980) $(1,239,348) $ (171,301) $ (938,695) =========== =========== =========== =========== =========== 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) June 30, December 31, 2011 2010 ————- ————- Assets Current assets: Cash and cash equivalents $ 10,850,321 $ 3,595,076 Accounts receivable, net of allowance for doubtful accounts of $-0- June 30, 2011 and December 31, 2010 3,571,623 11,594,549 Prepaid expenses 405,111 319,209 ————- ————- Total current assets 14,827,055 15,508,834 Property and equipment, net 686,451 507,247 Amortizable intangible assets, net 843,333 953,333 Other assets 114,488 114,469 ————- ————- Total Assets 16,471,327 17,083,883 ============= ============= Liabilities and Stockholders’ Equity Current liabilities: Accounts payable and accrued expenses 3,762,767 4,399,579 Current portion of capital lease payable 69,372 66,770 Deferred revenue 7,813,470 8,454,029 ————- ————- Total current liabilities 11,645,609 12,920,378 Long-term portion of capital lease payable 81,385 116,734 Long-term deferred revenue 1,350,000 1,350,000 ————- ————- Total liabilities 13,076,994 14,387,112 ————- ————- Stockholders’ Equity: Common stock, $.01 par value. Authorized 150,000,000 shares as Class a; 83,116,779 shares issued and outstanding in 2011 and 81,331,737 in 2010 831,168 813,317 Common stock, $.01 par value. Authorized 13,000,000 shares as Class B; 35,556 shares issued and outstanding in 2011 and 2010 355 355 Capital in excess of par value 358,807,510 354,042,031 Accumulated deficit (356,244,700) (352,158,932) ————- ————- Total Stockholders’ Equity 3,394,333 2,696,771 ————- ————- Total Liabilities and Stockholders’ Equity $ 16,471,327 $ 17,083,883 ============= ============= Conference call: Today, August 9, 2011 at 4:30 P.M. EDT wave.com/news/webcasts Dial-in numbers: (212) 231 2911 or (415) 226 5356 Contact: Wave Systems Corp. Gerard T. Feeney CFO 413-243-1600 Jaffoni & Collins David Collins, Jennifer Neuman 212-835-8500

SOURCE: Wave Systems Corp.

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Wave Q2 Software Licensing Net Revenues Rose 31% to Record $8.1M