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Wave Systems Corp. (NASDAQ:WAVX)

Q2 2013 Results Earnings Call

August 8, 2013 4:30 PM ET

Executives

Steven Sprague - President and CEO

Gerry Feeney - Chief Financial Officer

Analysts

Dave Abish - Private Investor

Jeff Kitchin - Oppenheimer

Ronald Meier - REM

Kevin Gusinow - First Place Financial

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Wave Systems Second Quarter Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded, Thursday, August 8, 2013. I would now like to turn the conference over to Gerry Feeney, Chief Financial Officer. Please go ahead.

Gerry 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 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 could cause the actual results to differ materially from those contained in any forward-looking statements that we may make.

At 4 o’clock this afternoon, we released our financial results for the second quarter of 2013. 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, 2013, Wave's net revenues were $6,742,000, which is again $1 million decrease compared to the second quarter of 2012 net revenues of $7,761,000 and the $1 million increased compared to this year’s first quarter of 2013 net revenues of $5,794,000.

Compared to year ago, the second quarter of 2013 decrease in revenues was principally due to lower OEM bundling revenues, resulting from a lower volume of shipped units. Total billings for the second quarter of 2013 were $5,940,000, compared to $6,941,000 in the second quarter of 2012, and $5,891,000 in the first quarter of 2013.

Reflecting ongoing cost containment programs, including initiative we’ve made in mid May of 2013, Wave’s combined SG&A and R&D expenses declined to 27% to $9.7 million in the second quarter of 2013, as compared to $13.3 million in the year ago second quarter and these expenses also declined 12% as compared to $11 million in the first quarter of 2013.

Net loss for the quarter was $3.5 million or $0.12 per share, compared to last year’s second quarter net loss of $6.5 million or $0.28 per share and this year’s first quarter net loss of $10.2 million or $0.40 per share, which included $4.2 million in Safend non-cash impairment charges.

The weighted average number of basic shares outstanding for the second quarters of 2013 and 2012, along with the first quarter of 2013 were approximately 28.3 million shares, 23.1 million shares and 26.3 shares, respectively.

To highlight the company's operational performance on a cash flow basis, Wave reports EBITDAS, which is a non-GAAP measure defined as earnings before impairment charges, interest, taxes, depreciation, amortization and stock-based non-cash compensation expense.

In the second quarter of 2013, Wave had negative EBITDAS of $2.5 million, which is an improvement compared with both negative EBITDAS of $4.6 million for the second quarter of 2012 and negative EBITDAS of $5.2 million for the first quarter of 2013. At June 30, 2013, Wave's total current assets were $5.7 million. Wave's total current liabilities were $14 million, which included $6.1 million of short-term deferred revenue.

In the second quarter, Wave raised approximately $1,383,000 at an average price of $1.65 per share through its At-The-Market or ATM structure.

Also, during the second quarter, in April of 2013, Wave raised gross proceeds of $3.2 million and registered direct placement of its Class A common stock. And subsequent to the end of the second quarter, in July 2013, Wave raised additional gross proceeds of approximately $1.5 million with the sale of its Class A common stock.

Now Steven will highlight some of the key developments for the second quarter of 2013.

Steven Sprague

Thank you, Gerry, and thank you, everybody, for joining the call today. This has been a quarter of I think good solid progress for the company on a variety of different fronts. We have, first off, addressed our NASDAQ listing issues and I think that is behind us at this point, and so we are very pleased with that.

We have also seen a really good expansion and progress in the market of distribution partners that we’ve signed. And part of what’s driving the number of distribution partners who are coming on board is that we are seeing substantially greater customer interest and as the customer interest grows, the distribution interest grows, and the whole machine gets stronger and healthier.

We’ve recently on-boarded NEC was announced today in Japan. We are pleased to have them joined Wave community of OEMs and we look forward to strongly supporting them. It’s been a long working relationship with them and we are pleased to have them, have our product available for distribution. This is a standard OEM relationship for Wave.

We also and of course, the last quarter actually I think it was the quarterly call or the annual call, we announced our relationship in distribution with Fujitsu, and those products are now available with Fujitsu in the market, just really in the last few days or in the coming few days, it’s in the process right now, as we speak of products becoming available.

And so, again, it brings us two very strong brands in the marketplace who were supporting the Wave solution and delivering it to their customers in their markets. Wave does not had a huge presence in Japan, and so we look forward to expanding our distribution there and supporting their platform with our capabilities.

I would also say that the other really broad and interesting context in distribution side that’s expanding is the Opal drive capability. So, self-encrypting drives as a standard capability are becoming much more prevalent across the different drive manufacturers. By the end of the year a number of drive manufacturers will ship Opal capabilities across their drive lines and really increases the volume in the market.

It also increases the supply chain and inventory and as a result, we are seeing the distributors putting pressure both on the drive manufacturers, so they customer interest and wanting to bundle software, and we successfully secured a number of relationships to package the Wave software with drives in the distribution channel, where we paid every time the drive is actually delivered and shipped.

And so that expands revenue for us. It’s independent of the OEM distribution because it’s actually through the distributors, so if you buy drive directly, it comes with packaged software, which is different. And if you buy Dell machine and Dell provide you software with the box. So it’s a nice expansion of our business. We are working really to see diversity in our OEM supply chain and revenue.

We have also signed some other distributors that are more specialty invasive, companies like Axiad IDS who are really focused in the security vertical, providing both government and industry, companies like Intelligent Decisions who really supply the federal marketplace and are influenced very heavily as a contract holder by things like the consolidated by 17, which now requires Opal drives and Trusted platform modules in really language in those contract.

And it’s through organizations like Intelligent Decisions that we can reach the dozens and dozens of installations that are buying machines with drives and want to understand actually how to put them into use.

And all of this is to a backdrop of what’s really driving this industry is Microsoft wholesale adoption Trusted Computing as part of their operating system and their product line.

Certainly we have seen a strong uptick and interest with the launch Windows 8. And there are now a number of presentations that are out on the web and for anybody to see about Microsoft inclusion of capabilities in Windows 8.1 that continue to extend the support for Trusted platform modules and Trusted platform capabilities and Wave really augment that offering.

We not only support their Windows 8 platform and Windows 8.1 platforms, but we provide that bridge to the existing install based whether it would Windows XP or Windows 7.

So that the customer who is buying maybe 10,000 new tablets today and want to use this new advanced security capabilities can also explore using those capabilities after existing installed infrastructure. And we are really seeing that mechanism began to work and in pretty broad scale.

We’ll just sort of highlight for anybody who is new to Wave, just a brief comment on the focus and direction of the company. When you look at the suite of offerings and products that Wave provides, we’re really focused on doing four core things, one is how do we reduce the reliance on passwords, how do we make it harder to steal people’s information because I stole your credentials and in essence, the device provides that platform to protect the credentials.

When the device is the primary mechanism that protects your access then it’s very important that the device is safe to lose and self-encrypting guys provide that key capability where any user whether a corporate user or consumer wants the benefit that if they forget their computer in the back seat of a taxi cab, they don’t have to worry about all their personal data that’s on it.

And so having an encrypting hard drive is very useful but the real value in encrypting hard drive is that’s properly managed. And so Wave’s cloud services provide the tool. So even an individual user can properly manage a self-encrypting drive so that if they forget their password or their machine is left unattended for long time and they can’t remember how to unlock it, there is a recovery mechanism that’s part of that central management capability.

Thirdly, the opportunity for private communications on public cloud services. And certainly we’ve had a fantastic running summer marketing program on this, by this very nice gentleman from Huawei, who left the country with a few laptops full of ultra technician secrets that were wrapped around the concept that the data that’s being pushed around in communications is being watched by everybody.

It’s being watched by government. It’s being watched by service providers, by foreigners et cetera. And so the idea of taking steps to secure your private communications on public networks is definitely a worthwhile thing. It’s something that’s well understood in government circle that you should have secured communications. And it’s really one of primary objectives of any government is to have their own secured communications but at the same time really now its becoming necessary for individual corporations and in some cases individuals to secure those.

And Wave has focused on building tools that enables secured communications but in a safe manner. We’re not here to help to facilitate inappropriate secured communications. These are still communications where keys are essentially archived so. If I want to subpoena somebody’s communications, it can.

And we found very strong interest in. I think we’re in the right place at the right time. Certainly, the awareness in the market and public conversation around should we or should we not have some privacy on the internet is intriguing. And one of the core technologies that will help enable a more private communications model going forward are the Trusted Computing Technologies across the board.

And finally, the number one thing that we can do in securing all of our cyber infrastructure is only know devices with known capabilities, strong device identity and a strong understanding of what actually device’s capabilities are before it’s connected to the internet. And so in working with OEMs, we’ve -- I think taking good steps to diversify our revenue but we’re also diversifying the product capabilities in bring new products like notes to market for strong device identity into the cloud.

We’ve actually seen tremendous interest from the PC OEM community and from a number of service partners to incorporate that capability into that product, that’s still early on in the process. They have standard that are being contemplated in the space.

We’ve been working very closely with organizations like FITA who has been working very closely with organizations like NSTIC, The National Strategy for Trusted Identities in Cyberspace and we’ve made really good progress on those fronts.

And we think we have one of the best technical implementations in the marketplace today. So it’s really bringing both sides together, distribution, I think that lot of people have the capability in their box. There are about half a billion boxes that support this capability today. We have shipped software on about $120 million of them.

Certain enough to do a pilot, that said, a little bit tongue and cheek. And so as we go to approach the service providers and in essence bring them this incredible install base of PCs and move them into what looks like a mobile conversation where services can be down to the device. We really open the door for our tremendous opportunity.

And so the conversation continues its interesting -- it never moves as quickly as you’d like but we’re making good progress on it. The other announcement I think that would be useful to provide a little explanation to was a week ago at Black Cat we announced a relationship where we’re going to bundle or incorporate technology from lighter corporation into our BIOS integrity capability.

They discovered some vulnerabilities in the actual BIOS of the number of the computers. And these are tools to help offset some of the concerns that were shown there. It will be ultimately be a combination of these stools and other things that are being done in the marketplace to provide a strong assertion that not only this is the right device but these are the capabilities of that device.

And I think it’s important to see that there is more attention being paid to the integrity of the machine, trusted platform, the secured boots et cetera and all this is ultimately driven by the fact that the future Microsoft operating system support secured boot capability that’s dependent on PPM. And that we’re beginning to understand that it’s very important that the endpoint devices or the machines that we use every single day that we can assert to service providers or to corporations that these machine’s capabilities are well understood.

Because no longer is it possible to just say every computer at XYZ Corp. is going to have encryption because you might have a laptop, you might have a tablet, you might have a phone, you might have two or three phones and not all of them are going to have the same encryption capability. And so we truly believe in the future of that. Device identity and capabilities will allow an organization to save an enormous amount of money but only having to have advanced capabilities on those machines that really need access to sensitive data.

And so that we can keep track of which machines are connected and whether they are allowed to have the data and how do we control those machines. And so we don’t end up with poor laptops with lots of national secrets in them wondering around Moscow’s airport for a month. It’s important to understand not that they just left the country but how the data get on the machine in the first place. And Trusted Computing are some of the core controls that help enable understanding what machines are connected to the network.

So let me talk a little bit about our enterprise activity. Really, the growth of the business is going to come from our enterprise sales. And it’s been an interesting and challenging year. We had a very centric business wrapped around self-encrypting drives and data encryption. And we certainly saw a hiccup at the end of 2011 with the supply chain interruptions caused by the floods in Thailand to the drive availability of Opal.

And I would say that we now see really as of this year, I think we’re finally where we expected to be a year ago which is this adoption of Opal across the drive manufacturers, deeper into their products, standardized in their products, standardized into the supply chain, much broader availability, volumes are up, all those things are in the right direction.

But in addition to an improvement in Opal business which is really accommodating a number of large accounts that are sitting in front of us that we’re working on. It is also diversity of the offering into the enterprise. About a third of our current pipeline is wrapped around turning on trusted platform modules for things like device identity or port control and machine integrity. And that’s very healthy for us.

There is much more competition in the data encryption than there is in the TPM space. And we can show our customer that we can do both. Then we can bring the offerings together and we really have again a unique offering into the enterprise space.

Today, the business has been a mixture of both expanding the revenue at our biggest customers, companies like BP, BASF, General Motors, PWC and bringing new business in. We’re working for about $50 million today worth of quotes that are outstanding. There are quotes that expire in this quarter had to be fair. There is a substantial chunk of that.

The vast majority of it is, we’ve been DOD space where a number of offers been put in on end of your money and represents the vast majority of that number but these are deals that still have potential to close in this quarter. Realistically, I think we’re expecting to supplement our normal quarterly sales level with a few million dollars worth of additional sales in Q3.

Our hope is to drive at least two if not beyond cash flow neutral for the quarter. We certainly have the transaction sitting on the table to accomplish that. Many of them are in fairly mature stages but there are still deals to be closed. And we’ll announce our large deals as they happen.

I would say that if they are getting shorter in timeframe to actually bring to closure. The scale of them is substantial. The marketplace is getting easier on this. We’ve delivered pricing in most of these already and so we’re making really solid progress.

In addition, we’re starting to see the effect of the work we did back in January to March timeframe in supporting the Windows 8 platform and supporting the mobility message and the broadening of Trusted Computing capacities, the result that has occurred. I can just use an example, we’ve, just in the last 10 days, added fee hundred thousand seats of opportunity where the customers have found us not us finding them. We’re early on in those processes. Obviously, these are customers we weren’t even talking to two weeks ago.

And so it’s interesting to see that. And I would say, the bulk of that is actually probably this calendar year, close opportunities. So, the fact that we can see that kind of volume show up and have hopefully less than six months closed cycle just based on the amount of information, these are -- they picked up the phone and called us and we’ve been back and forth in the phone and delivering information almost daily.

And so, there are new opportunities. They can show up into the period just as fast, but it’s great that they have found us. They have shown up on the table and they are at scale. And anytime, you can -- and in the couple of week period of time in what people perceived to be the slow time of the year add $8 million to $10 million worth of opportunity on the table. That’s a good thing.

So, overall the enterprise businesses is getting healthier, it’s feeling healthier. The momentum is better. At the end of the day, we know we have do which is deliver the results on the table, as solid sales members. I think a big chunk of that both in Q3 and for the next calendar year will be in U.S. federal and defense department.

I think that there is a very strong set of indications for integration of Trusted Computing into their architectures, their plans. It’s part of, their procurement process, their standardization. There is good strong focus on it. I think there is good strong progress. And the reason is this is the technology that will help them to address one of the core problems they had at scale.

And so we can deliver our component at this solution to cyber security then, I think we’ve done our job. It’s very important. The number one policy we could have is only known devices with known capabilities connected to sensitive networks and data. And if you are standing next to a Congress men at cocktail party that’s the message they need to learn as we need to make sure we understand what’s on the network. And that understanding, that knowledge of known machines, known capabilities is really critical.

Let me just touch briefly on our cloud services. We continue to expand our cloud offerings. I would say that scrambls has just had an interesting month and half since noting. We have had some interesting conversation in the U.S. and then Europe. We think there is tremendous opportunity to support protected communications, put the keys in the right locations. So that they are both properly controlled and also outside of reach of others.

Our note services had good interaction since its launch. I would say it’s very much on its expected pathway. And anybody who wants to try play with, you can go find and do that, note Knowd.me

It’s also available at id.wave.com on both websites point to same location. You can push the button and turn on your TPM on Windows 8 platform or Windows 7 and you see that is a pretty easy process to execute. Right now, just as a toy, it deliveries your Trust Score and so you can work on improving your Trust Score by downloading a plugging and having a turn on your TPM.

We’ve also had a good early data launch of our self-encrypting drive cloud service. And we will see that go to production over the course the next couple of months. We think we have a very unique offering in the marketplace there. We’ve had really good progress on it.

And finally, let me comment on eSign or eSignatures business continues to move along. It actually had good growth in Q1 to Q2 that had almost doubling of sales in Q1 to Q2. We actually hope to see that continue into Q3. The mortgage -- electronic mortgage process is finally scrapping together the last few pieces. And you can now do your proof of income electronically which couldn’t be done before. So, we’re signing forms that are then verified by the IRS return, that is to verify your income and that actually starting to generate some interesting transactional volumes.

Overall the market place of eSignatures is waking up and Wave has a very strong offering in that space. So, the company is moving ahead strongly. It’s been a challenging last couple of years for sure. We -- I think we’ve taken the steps to control our expenses and you’ll continue to see our expense side come down and hopefully continue to see the revenue side grow.

And if those two things continue to march along at the pace that we’re hopping, we will get this to cash contributing organization and really put ourselves on a solid footing to continue to invest and be the one of the most important players in the Trusted Computing space. We work really hard to help drive this technology in this market place forward, understand what it’s implications are and what it means to bring solid built-in security into every device.

Our focus has been in the PC space. We certainly have a number of offerings that we’re pursuing and through aspect of mobility and we continue to pay attention to that, although our core focus is in PC.

And finally, I’ll say, many know that we’ve helped to put into place Trusted Computing Conference. It’s going to take place in beginning of September in Orlando from 9th to the 11th or 12th. And it certainly is open to anybody who’d like to attend.

And I think if you are interested in understanding what the rest of the industry is talking about in Trusted Computing, it’s a great opportunity. This is a technology that will ultimately touch all of our lives. Hopefully, implemented by Wave but certainly can be implemented by others.

And the implications of having strong identity and authentication in binding the service has really laid the foundation for how of the Internet will develop in its next stages and how subscribers will be properly be mannered and so be managed. So, it’s probably a very useful conference for anybody to attend, if you are interested in this technology and in this space. We certainly welcome there.

So, with that, I will stop and open this up to questions. And again, thank you everybody for your time and your attention.

Question and Answer Session

Operator

(Operator Instructions) And our first question comes from Dave Abish who is a Private Investor. Please go ahead.

Dave Abish - Private Investor

Yeah. Hi, Steven.

Steven Sprague

Hi, Dave.

Dave Abish - Private Investor

Today’s NEC Wave PR. I noticed it didn’t mention anything about royalties or bundling and/or is Wave receiving a royalty similar to what we have set up with Dell OEM deal?

Steven Sprague

Yeah. It’s a very typical Dell Wave OEM relationship. We are not specific on the amounts that were paid in this. And certainly, there is no specific expectation of, let say, expectation is wrong word, there is no guarantee of volume. Certainly we don’t have an expectation of volume. But there is no guarantee.

So, the way these deals work is we, they license technology, they have the right to put in the box, they give us volume forecast, but there are no guarantees against those forecast. So, we like to let them ship and then we’ll report how much money we’ll make off of them. Our experience has been that volumes go both directions.

I’ll use an example, I just got a fantastic volume forecast from Samsung. It comes really the awesome. I’ll wait and see how much they ship, right. It -- there is no, they looking out their forecast.

Operator

The next question comes from Jeff Kitchin from Oppenheimer. Please proceed.

Jeff Kitchin - Oppenheimer

Yeah. Just along the same line, can you comment a little bit about the Dell relationship? What that structure look likes going forward and then you’re not (inaudible) going the pricing but when you characterize, I guess, what you’ve done in the past?

Steven Sprague

Sure. So, our Dell relationship, we just delivered updated packaged software to them and of course the last couple months. We’re shipping across broader array of their enterprise units, but not a 100% of their enterprise units.

And as I have said to a number of people, it’s very hard for us to forecast what Dell looks like, partially because of their going private strategy. It’s unclear to us as to how much they will internalize versus externalize capabilities, and we get mixed messages out of that, at that communication. So for the time being we support Dell very broadly in volume.

And as I just said, on the NEC, we are engaged in this case and with our engagement conversations on future products as it was in the past. And their decision is to whether we get included or don’t get included and what the exact royalty stream is continuous and ongoing basis conversation.

So, I would say for the next, from now till the end of the year, which is I would say, where we have pretty clear picture. We expect to continue ship as usual and we continue to be in discussion is to what next year looks like with Dell. So, I would say that that’s a direct way to characterize at this moment in time.

Operator

(Operator Instructions) The next question comes from Ronald Meier from REM. Please proceed.

Ronald Meier - REM

Hi, Steven

Steven Sprague

Hello.

Ronald Meier - REM

I’d like you to comment further on two items that you discussed today. Would you comment on the revenue potential and strategic importance to Wave and deal with MITRE, in another words, where would you place the potential importance to Wave and say comparing it to the successful deals Wave has had with Dell and General Motors and it be just as important as Dell and GM.

And number two, it sounds like your comments today that your revenue projections and your staffing costs and other expenses are lining up or in sync with one another for a cash flow breakeven result by the end of the fourth quarter 2013 and if not, when do you see it happen?

Steven Sprague

Sure. So, I’ll adjust the second question first and I will come back to the first one. So the -- on a cash flow breakeven basis, there are enough transactions in the pipeline that one could get to a cash flow breakeven capability in Q3. Sort of billings in Q3 had exceeded expenses.

The interesting challenge is those deals aren’t done until they are done and can they slip by a month, certainly. And our experience has been probably should bet on the more slipping by months and the other way around. On the other hand, many of these have been doing work for quite some time. So I would say a confidence level is getting pretty high that we are going to be pulled off.

That clearly is a very important point for everybody, for the investors, the company, the employees, our partners, et cetera and so we are very focused on it. The amount of business that we have sitting ahead of us that should be completed before the end of the year, I would say that we should be solidly cash contributing in the second half of the year.

And, so we will see that happen. This market place is beginning to happen in scale. And actually I think one of the risks that we have had, is we need these engagements on a short enough basis so that the world begins to have an expectation we actually can sell something to somebody. And that there are actually money being made in this Trusted Computing space, so that we have the resources and infrastructure to support the true growth of this market.

This -- no one is paying attention to Microsoft and no one is paying attention as a result of the enterprise. And the enterprise is about to get turn on this infrastructure for everything across the board. And I think the way to think about Wave is this we’re trying to play the role of how do you be a Cisco VPN infrastructure even though Microsoft builds VPN capabilities into the operating system.

There is a role for specialty player who really truly optimizes the implementation of trust to computing and shows off the full value proposition for both the operating system and the infrastructure wrapped around it. And that’s what we are trying to do. And this scale is going to touch every single enterprise seat. And I could make an argument that we will touch every consumer seat as well.

The tolerance we have as consumers for passwords on a long-haul basis going forward, there is just no way that they are going to get complex enough to give us some inkling of security and the risk that we are exposing every single day by not implementing as an individual consumer across every service that we use, reaches the point where we could have systemic failure of pieces and that systemic failure of pieces could cause us huge harm.

So, there is a very solid path that drives us there. And I would argue that wave is close enough that our probability of actually executing and pulling it off in this space is now getting pretty good. There is no risk, none, zero, that trusted platform modules will be used to secure the integrity of operating systems.

Microsoft is betting on it across the entire enterprise space. There is no risk. It will happen. And the only question is what will be the ancillary parts they need wrapped around that to really support the delivery of that. And right now Wave is one of the only companies in the world that’s made the investment necessary to execute on it.

So we are in the right place at the right time. We don’t have a competitor chasing directly after us in this. We have Microsoft plowing the road in front of us and it may still be a height of Everest but you’ve got Microsoft breaking trails. So it’s getting better.

The second conversation actually I think is a fantastic indicator of it. So why is the U.S. government going to waste time checking to see the integrity of BIOS’ and Mitre is an extension of security infrastructure of U.S. government. They are one of their prime contractors in this space and one of their prime research contractors.

And what they have discovered was that certain aspects of BIOS was not being implemented correctly and created vulnerabilities. By the way, the vulnerability they discovered -- while its interesting to be exploited on a machine with a TPM, they are only 0.01% machine that have the TPM turns on for BIOS integrity.

The other 99% of the machines have no protection at all. And the heck that they showed is that in heck of the BIOS could persist across a reflashing of the BIOS, which means if not cured, and not detected, the only solution is to toss the computer. There is no fix. You have to throw the computer out.

So if you imagine its happening to -- I don’t know, pick something, the American Airlines reservation system, tossing all those computers would be spurred, like we wouldn’t fly for a week. And so this has a potential of very serious implications. So, the revenue specifically generated from that is an interesting question.

I don’t think the transaction including their suggested technology in our product has a transactional revenue associated with it. What it does however, is it says that we’re implementing and supporting the state-of-the-art capabilities and machine integrity and we’re doing that both in support of the OEMs and in support of the big customers that are out there.

And so we have a solution that not only has been the first solution to market to do attestation services for BIOS integrity of machines. But we are continuing to innovate in that solution and advance it. We are paying attention and we are part of the circle that understands what’s actually going on. So that, yeah, we understood that this has happened. We also wanted to make sure that when it was presented at Black Hat, a solution was presented along side so that there is a clear path for the marketplace to go.

A 100% of all scale enterprise companies, Fortune 1000 or Global 2000 would be really to think about it, should turn on BIOS integrity yesterday. And in reality if they started yesterday they are turning on, they probably barely get there in time for their Windows upgrade two to three years or four years from now.

The ones that are fast are going to be the ones that go to Windows faster anyway. The ones that are slow they are also going to take a significant amount of time. The deploying infrastructure to start to inventory and understand all your end point devices doesn’t happen overnight.

And so, I think this is the beginning of -- how do you generate $30 or $40 per seat times $500 million seats. So that’s sort of what the revenue potential is about that transaction is but obviously it is just a component of the overall space which is BIOS integrity and attestation services and then the question ultimately is what will Wave’s market share be?

But, we are providing infrastructure attestation services on Windows 7. If you look at the difference between Microsoft Windows 8 and 8.1, they start to talk about, now we do attestation services for TPM keys, fantastic, right. Bring that message to marketplace and you need to be able to do that, because as we all know the big problem has been for Wave is that we don’t have a large enough megaphone and what we need is a much bigger marketing message.

And so, having one of the largest companies in the world carry a marketing message out to the market place and say this is the direction the industry is going. And Wave being in a position to have one of the few supplying capabilities we think is an interesting place to be. Thanks for the question.

Operator

(Operator Instructions) We do have a follow-up question from Jeff Kitchin with Oppenheimer. Please proceed.

Jeff Kitchin - Oppenheimer

Just today on the announcement you referenced that you displaced Infineon, so I’m kind of curious what the competitive differential was. And then two, you talked about reducing expenses that you also made some announcements about hires particularly at the management level so maybe you can kind of juxtaposed those?

Steven Sprague

Sure. Two things, one we think that we are providing solutions that’s very competitive with Infineon’s offering in the marketplace. And our general sense is that they are sort of moving away from being a software supplier in this space as much as they have been. And so it opens up opportunity for Wave.

There is still a very strong role for solution to be provided before eventually the clients offer should ultimately be just Windows 8 and 8.1 and 9 and whatever. It will be interesting to see because there are components of the Trusted Computing offering that Microsoft so far is not including in their products, that we think are useful and important and our customers do as well.

But Microsoft has chosen, excuse me -- to leverage those, solutions in their -- in their offerings and so they don’t need them. And so, it leaves space for us to continue to provide OEM sort of driver level infrastructure at least for the foreseeable future. And so, we’re in a strong position to do that. I think that -- I think there are other opportunities where we can continue to displace Infineon’s offering in the market.

And obviously, we’d like to do that with largest players as well, both Lenovo and HP carry other offerings in the marketplace than Wave and I think that we could add value to both of those companies, and we certainly continue to try and attempt to remind them of that on a regular basis. But at the end of the day it has to be the right, both time, capability price point to make that work. And I have to remember the second half of your question?

Oh! People, so, yes, we certainly had some significant changes in personnel. We’re very pleased to add Bill Solms to our North American VP of Sales. He just joined the company the 1st of July and came to us from previous work in federal space. He worked for Microsoft, Oracle, number of other companies. And he is, I think, solemnly getting his hands on the wheel and he’s been a great contributor so far. He’s been on the job just a little over a month. And so now he knows that to call everybody up.

But we look forward to his real influence in the organization and really helping to drive the North American sales team forward. So, he’s been a great addition and we welcome on the Board.

And we’ll continue to look forward and add very strong talents in the organization. It’s -- we’re in a pretty healthy position right now personnel wise. I think the company is executing reasonably well. I think we have most of the positions filled.

We do see strong growth coming in front of us and we want to make sure that operationally we are prepared for that and we’re trying to take steps to make sure that assured, that we’ve got the right people on the right places to help the company grow. And it’s been a challenge in the past keeping the pace correct. We think we want to learn from those mistakes and make sure we do it in a more balanced approach going forward.

Operator

The next question comes from Kevin Gusinow with First Place Financial. Please proceed.

Kevin Gusinow - First Place Financial

Hey, Steven.

Steven Sprague

Hi.

Kevin Gusinow - First Place Financial

I’ve got a question for you on the eSignatures that you’re talking about the eSign. Are we, I know Wells Fargo is coming out with their own eSignatures on all their products? And I was wondering if we’re involved in that and what is our revenue from an eSignature, I know like I sit alone doc has a 100 pages to it? But is it, I assume this is just going to be one signature blanketing the whole things? And then there is eSignature annual conference in November are we going to that as well?

Steven Sprague

So I’m sure we’re going to the eSignature conference. Generally on a revenue stream basis, we have sort of three different business models and so it depends on which deals have been done with whom. In a transactional basis we make in and around dollar transaction, in some cases it’s less than that that sort of puts in the rough scope sort of think of a dollar as a maximum. And it doesn’t matter whether the document’s got 100 pages or 10,000 pages.

Actually it turns out that where the complexity is, it’s not so many, how many pages are in a document, but you really if you think of it more as a process automation where, what if you have six different people have to sign, but he has to sign first and then she has to sign and what happens if you need a note rights, and who checked your identity and et cetera, et cetera. So electronic signing is a much more entertaining process than it appears on the surface.

One of the reasons that electronic signature is important to Wave is that at the beginning of every identity you’ve ever had there is a contract. You don’t have identity as an American citizen unless you have a birth certificate. You don’t have a birth certificate you don’t exist and as far as the government is concerned, right? And you don’t, before you get your credit card, you have to fill out an application, so you get the bank identity but that’s what it is.

As far as the specific Wells Fargo it actually was a project that we had been involved and they chose to implement their own solution. It was actually one of things that helped us to understand a new economic model for us that we’ve been now and testing. We have a number of customers interested in.

But we think that certainly there is a big company out there that’s had some success called DocuSign and they have the sort of leading cloud service provider for signature and we become quite convinced that most major corporations do not want to outsource their signing and the vaulting of all the originals, that actually they don’t want the originals just stored somewhere else, but that business process is in accordance to their running of their business.

And so what we’ve done is, we’ve created an offering where we’ll actually do, what in essence is a source code license to our product for a substantial fee, a multimillion dollar fee. But then the customer can own it for life without necessarily an ongoing royalty payment. And so that way they have the ability not only to own it but to change it as they see fit and it’s the change part that’s really important for them.

And so it turned out that in most cases in the past we’ve been competing not so much against other license software but against build your own solution internally. And so we feel that we can provide a company with the best of both world a proven already executed solution, Wells Fargo could have been doing signatures three years ago. They chose to build their own solution.

And instead we could have given them a source code license model, where they could have gotten in the business much more quickly but then still ended up with resulting control. And I would argue that they would spend less money and we would make more money on that transaction.

So it’s we’re still exploring I think what the exact right economics are, the whole space has taken forever to engage. But it is one of the core things. Once you’ve a strong electronic identity, the first thing you want to do to execute contract with it. And what’s fun right now is, anytime we do a deal on the eSign -- with the eSign team, all those deals are electronically signed and they are most fun contracts to do, because you get emailed a ceremony, you go through the process, it takes five minutes, it’s fully documented there, you don’t have to worry about filing the documents automatically done it, it really is brilliant and everybody should do electronic signature for everything.

But fundamentally, we’re competing with the fax machine. It has like 99% market share. It’s killing all of us in eSignature and the good news is that children have no idea what a fax machine is, they expect to be able to sign on their iPad. So there is a period we may have to wait for a whole generation.

So it’s little bit of a funny space. We’re in this business but don’t try and talk to my lawyers and attorneys and auditors about, hey, let’s do our quarterly filings electronically signed or like you had your mind, so it’s a little bit interesting to watch the engagement of eSignature in the space.

But it’s small team. It adds interesting value to us. We have strong presence in the finance and insurance industries. We have been very influential on the standards. We have been a reference platform. We’ve done some of the early work. We have a lot of knowledge in IT and space, so it’s an interesting space for us.

Operator

The next question is a follow up from Dave Abish. Please proceed.

Dave Abish - Private Investor

Yeah. Hi, Steven. Wave received the SOS contract for $600,000 for the ruggedized vehicles and we’ve seen now that has been approved in June? When will we -- when do you expect Wave to start seeing some revenue from that approval for the SCDs?

Steven Sprague

I don’t know that we’ve necessarily seen that go all the way through this process. They have now selected their new supply for devices in a much bigger contract and that’s affecting the supply chain of devices. So we are -- we -- I am not so sure I can comment too much more on that contract.

But the idea is that the vehicles that are driving around have properly protected encrypted drives in them is, I would say, solidly in their minds and it’s solidly part of their plans and Wave has been instrumental in helping that process.

So they fit out there is one of those really interesting prospects in federal. I don’t think there are Q3 opportunity I think its Q4, Q1 timeframe, but we continue to see very solid progress on it. So hopefully, I answered your question. It’s not an easier one. It’s not a simple one to answer.

Operator

And gentleman there appears to be no further questions. I'll turn the call back over to you.

Steven Sprague

So thank you everybody for your time today. If you do have some questions, please feel free to reach out to me and I will try and follow up on email or give you a call. I would say that just overall the momentum in the marketplace is moving in the right direction, it’s a hard thing to measure on a quantitative basis. But I think that looking at what Microsoft is saying is a good indicator even though we all know they are beaten up, just remember that on your desk you still using the Microsoft operating systems, most likely on a laptop or even a desktop.

And I think that the whole idea of a greater role of privacy in the internet and not just, and so moving to a model where there is more private communication, there is potentially a great role of subscription and perhaps, a slightly lower role of voyeur SMS the primary business model, which is just ad based and everybody and watching everything that everybody does. It’s not going to change overnight.

But I think there is plenty of room for both and I think we’re seeing the emergence of that second model which is a protected model for private networks running on the public networks for healthcare, for finance, for personal communications, that is really the basis of what we’re trying to help enable and what we’re trying to do.

And it’s -- in the combination of lots of hard work by individuals and employees of Wave and the leveraging of strong investments by the community of Wave and investors and shareholders. We have and we continue to make a very substantial difference in the marketplace. And so I thank you for your support and we’re making really good progress. Thanks.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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