Wave Systems Corporation (WAVX)

Q2 2012 Earnings Call

August 9, 2012 4:30 PM ET


Jerry Feeney – CFO

Steven Sprague – President and CEO


Ronald Meyer – REM Financial

Timothy Collins – Security Research Associates

Kevin Gusinow – First Place Financial

Robert Isler – Private Investor

Jeff Patterson – Private Investor

Dev Adarsh – Private Investor



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Welcome to the Wave System Second Quarter Conference Call. During the presentation all participant lines will be in a listen-only mode. Afterwards we will conduct a question-and-answer session.

(Operator Instructions)

I would now like to turn the conference over to Jerry Feeney, Wave Chief Financial Officer. Please go ahead sir.

Jerry Feeney

Thank you and good afternoon everyone. During the course of this conference call, we may make forward-looking statements regarding future events or the future financial performance of the company. We caution you that these statements are only predictions, and that the actual events or results may differ materially.

Additionally, we refer you to the documents the company files from time to time with the Securities and Exchange Commission. These documents identify and describe important factors that can cause the after results to differ materially from those contained in any forward-looking statements that we may make.

At 4:00 O’clock this afternoon, we released our financial results for the second quarter of 2012. These can be found on our website at Wave.com. Please refer to the company’s press release for more details relating to the financial results.

For the second quarter ended June 30 2012, Wave’s net revenues were $7.761 million, compared to the second quarter 2012 net revenues of $8.94 million and the first quarter of 2012 net revenues of $6.982.

The year ago second quarter of 2011 included $2.364 million of recognized revenue from two large enterprise customer licenses that was recorded rapidly during 2011. As these licenses were fully recognized by the end of 2011, the second quarter of 2011 the second quarter of 2012 reflected only $369,000 of ongoing maintenance revenues from these two customers. Accounting for $2 million of rest of revenue in the current quarter versus the year ago second quarter of 2011.

The second and first quarters of 2012 net revenues also included $1.6 million and $1.1 million respectively from Safend. Safend is Wave’s wholly owned subsidiary which was acquired at the end of Q3 of 2011 and such as not included in any results from the year ago period.

Totaling billing of the second quarter of 2012 were $6.9 million which included $1.4 million contribution from Safend. Compared to the second quarter of 2011 billings of $9.3 million which included $3.5 million in one order of going from BASF.

As a result of planned investments in the company’s sales and marketing, and R&D efforts to support OEM partners and related sales opportunities, as well as increased headcount in sales, marketing and engineering support services resulting from the September 2011 addition of Safend operations and expenses, Wave’s total operating expenses increased to $14.208 million in the second quarter of 2012. This is up from $10.153 million in the second quarter of 2011. Compared to Wave’s first quarter of 2012 total operating expenses of $15.317 million, the second quarter of 2012 realized a decrease in expenses of approximately $1.1 million for the quarter.

The net loss for the second quarter was $6.521 million or $0.07 per share compared to last year’s second quarter net loss of $1.828 or $0.02 per share and also a $1.8 million improvement when compared to this year’s first quarter net loss of $8.313 million or $0.09 per share. The weighted average number of basic shares outstanding for the second quarters of 2012 and 2011, were approximately 92.483 million and $82.940 million shares respectively.

To highlight the company’s operational performance on a cash flow basis, Wave reports EBITDA which is a non-GAAP measured defined as earnings before interest, depreciation, amortization and stock based non-cash compensation expense. In the second quarter of 2012, we’ve had negative EBITDAs of $4.627 compared with negative EBITDA of $301,000 for the second quarter of 2011.

At June 30, 2012, Wave’s total common assets were $6.9 million. Wave’s total common liabilities were $13.9 million which included $5.1 million of short term deferred revenue. During the second quarter and to date in Q3 of 2012, Wave’s initial to approximately 4.1 million shares of its common stock till its aftermarket or ATM structure at a winning average price of $0.97 per share. This raised net proceeds of approximately $3.8 million after deducting 3% operating costs of approximately $118,000.

Shares sale to date in Q3 of 2012 represented approximately $1 million of a $3.8 million in net proceeds. And as announced earlier today, Wave has agreed to raise an additional $1.66 million in what is to be considered in at market offering to the sale of Class A common stock pursuant to its effective shelf registration statement.

And with that, Steven will highlight some of the key developments for the second quarter of 2012.

Steven Sprague

Thank you Jerry and thank you everybody for joining the call this afternoon. I’d like to start by just a general overview of the state of trusted computing in the marketplace today and we’ll get into the detailed operations in our price sales and OEM activities. From a trusted computing in the marketplace perspective, I think this represents one of the most interesting, benefits and challenges for Wave. In reality, we have the major players in the market now actively supporting trusted computing both in their products and in their marketing momentum in the market customer. Companies like Microsoft, Intel, ARM, NIST, Samsung, Google and others are actively participating in driving the message of Trusted computing forward. In that context it really is a fantastic growth in the market. The marketing efforts that Microsoft has done already around Windows 8 and we certainly see an expansion of that as the product actually becomes available has been very beneficial to us in the enterprise accounts and we really are seeing the overall market interest in trusted computing growing strongly. The bulk of that can be identified in the context of using trusted platform modules for device identity, BIOS integrity and really the ability to eliminate the reliance on users.

And I can’t emphasize this enough. I think one of the real challenges in the world today and we certainly saw it in the course of this week with the phishing attempts that were successful with Amazon and Apple is that it’s time to move users off their reliance on userid and password and really the service provider’s reliance on users remembering passwords. We can today and we’ve demonstrated this now and have a number of very strongly interested customers and that the ability to support domain authentication of a user to your enterprise account and provide the user only a machine and a pin number. They will not have credentials that can be requested by an e-mail phished out of them over the phone because all they have is a pin number and a machine. You will have to steal the person’s machine in order to steal their account. And I think that provide a really strong move forward.

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