Wavecom Announces First Quarter 2007 Financial Results

Significant year-on-year revenue growth and Strong 12-month backlog quarter-on quarter
Issy-les-Moulineaux, France-April 24, 2007

Wavecom S.A., today announced financial results for its first quarter ending March 31, 2007.

Ron Black, Wavecom Chief Executive Officer, commented, "We are extremely pleased with our first quarter 2007 results which reflect the momentum in our busines as indicated by an impressive 70% year-on-year revenue growth, as well as a significant 60%, quarter-on-quarter, increase in backlog." He added: "We are additionally encouraged to see a growing number of design wins, especially in markets like automotive, that we expect to lead to future higher volume growth."

Wavecom S.A., today announced financial results for its first quarter ending March 31, 2007.

Ron Black, Wavecom Chief Executive Officer, commented, "We are extremely pleased with our first quarter 2007 results which reflect the momentum in our busines as indicated by an impressive 70% year-on-year revenue growth, as well as a significant 60%, quarter-on-quarter, increase in backlog." He added: "We are additionally encouraged to see a growing number of design wins, especially in markets like automotive, that we expect to lead to future higher volume growth."

In millions of euros - Under US GAAP Group Consolidated results
  Q1 2006* Q4 2006 Q1 2007
Revenues 28.2 54.8 48.1
Gross profit 15.0 25.0 20.5
Operating expenses 14.4 21.2 19.0
Operating income 0.6 3.8 1.6
Net income 0.2 3.1 1.9
Additional information
Operating income 0.6 3.8 1.6
Stock option-related expenses (0.3) (0.7) (0.7)
Amortization expense related to acquisition -- (1.1) (1.1)
Operating income before stock-option compensation and amortization expense related to acquisition 0.9 5.6 3.4

*Note: Q1 2006 results are prior to our acquisition of the M2M business unit from Sony Ericsson acquisition that closed on April 26, 2006.

First Quarter Highlights: All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP), unless otherwise noted. Condensed and consolidated financial tables are provided at the end of this release.

Revenues: First quarter 2007 consolidated revenues were €48.1 million, an increase of 70% versus first quarter 2006. This significant year-on-year increase is the result of strong organic growth, as well as revenue contributed from the acquired business that was not in Q1 2006. The bulk of the 12% quarter-on-quarter decrease was due to the fact that there had been licensing revenues recorded in the fourth quarter 2006 for a total of €4.4 million, as well as softening of the dollar. With previous quarter currency rate, Q1 2007 revenues would have been €48.5 million.

In the first quarter, product revenues represented 99% of total sales with a breakdown by region as follows: EMEA 54%; Americas 33%; and APAC 13%. The remaining 1% of total sales was generated by servicing fees. The customer portfolio remained balanced in the first quarter, with the top ten customers representing 53% of revenues as compared to 51% in the previous quarter. No single customer represented more than 10%.

Backlog: As expected, our 12-month backlog on March 31, 2007, increased significantly by 60% to €82.4 million, from €51.5 million as of December 31, 2006. This increase came from all regions, with the highest growth in the Americas.

Gross Margin: For the first quarter 2007, gross margin of €20.5 million represented 42.7% of sales compared to 45.6% in Q4 2006. This decrease was due mainly to the absence of significant high-margin licensing revenue that we saw in the fourth quarter 2006. The gross margin from products, however, increased significantly to 45.6% in Q1 2007 compared to 41.1% in Q4 2006 as margin contributed by the acquired business continued to improve.

Operating Expenses: Total operating expenses for the first quarter 2007 were €19.0 million, a decline from the fourth quarter level of €21.2 million. This decrease was due mainly to the fact that in the fourth quarter we recorded a sizeable accrual for employee bonuses. In addition we recorded no bad debt in the first quarter 2007.

Profit: Operating income for the first quarter 2007 was €1.6 million, declining from €3.8 million in the previous quarter, mainly due to the recognition in the previous quarter of sizeable licensing revenues. On a year-over-year basis, however, this result was significantly better than the operating income of €0.6 million for the first quarter 2006, owing to stronger revenues. Net income for the first quarter 2007 was €1.9 million compared to €3.1 million in previous quarter, and €0.2 million a year ago.
As shown in the above table, on a non-GAAP basis, which excludes stock option expenses and expenses related to our acquisition, the operating income would have been €3.4 million for the first quarter 2007, compared to €5.6 million for the previous quarter.

Balance sheet: Wavecom's cash position declined slightly quarter-on-quarter from €54.8 million to €53.7 million at March 31, 2007. Cash generated by the good results were compensated by some mitigating factors including the payment of performance bonuses and an increase in working capital, as inventory increased from €6.6 million at December 31, 2006 to €9.0 million at March 31, 2007 as a result of the transfer of most of the production from Mexico to our primary sub contractor in China.

Business news:

Q1 2007 Customer announcements:

  • Wavecom technology selected by PassTime™ USA for its latest payment assurance device, PassTime™ Elite, featuring the Wavecom Q2687 Wireless CPU®. The device harnesses the power of wireless machine-to-machine technology to help credit-troubled people own their own vehicles and mend their credit at the same time.
  • Wavecom announced that PSA Peugeot Citroën, a global leader in advanced automobiles, has selected Wavecom wireless technology for integration in its future generations of intelligent cars.
  • Wavecom announced the integration of its technology into the next generation of Yulon Nissan's telematics system called TOBE. This next generation of TOBE is an operator-serviced navigation, system integrating Wavecom's Wireless CPU®. This marks the first contract for Wavecom with an Asian automotive conglomerate for global automotive telematics solutions.
  • Arcom, Inc. and Wavecom, Inc. announced the selection of the Wavecom GR64 Wireless CPU® as the wireless technology for the Arcom ZyWAN asset tracking system. This robust, rugged tracking device offers comprehensive mobile asset tracking functionality, including vehicle location and mobile computing using global cellular connectivity.

Q1 2007 Product announcements:

  • Wavecom introduced the new Fastrack Supreme Wireless CPU®. This Plug & Play family product evolution keeps the same versatile form factor as the previous Fastrack product packed with a host of new features that will carry customer applications well into the future.
  • Wavecom announced an innovative embedded SIM solution that takes a major step in removing obstacles and stimulating wireless M2M and automotive market where traditional SIM cards are sometimes a point of failure risk. Wavecom was the first to demonstrate this technology, which fully embeds the SIM function into selected GSM Wireless CPU® models, and can be activated over-the-air.
  • Wavecom announced commercial availability of the Wavecom CM52 Wireless CPU®. Designed specifically for automotive applications, the CM52 operates within an extended temperature range and has a rugged build for extreme vibrations.

Q1 2007 Management announcement:

  • Wavecom announced the arrival of Emmanuel Walckenaer, a seasoned expert in the field of wireless service delivery and support to head-up its newest activity - RDMS, Remote Device Management Services.

Further commenting on the state of the business, Chantal Bourgeat, Wavecom CFO added, "Less than one-year post acquisition, we have re-established the strong product gross margin we had built in the historical Wavecom business. Our sales teams continue to win new business, our financial footing is solid and we are beginning to realize significant revenue momentum as evidenced by the strong quarter-on-quarter backlog growth."

Conference Call: Today at 3:00 p.m. Paris time, Wavecom management will host a conference call in English reserved for financial professionals commenting on its first quarter 2007. To access this call, please use the following numbers: +33 (0)1 70 99 42 67 in France, +44 (0)20 7365 1851 in the U.K. and +1 718 354 1152 in the U.S. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to the conference call commentary webcast (in English).

Wavecom will announce its Q2 2007 results on July 25, 2007 at 7:00 a.m. Paris time.

*Note: Q1 2006 results are prior to our acquisition of the M2M business unit from Sony Ericsson acquisition that closed on April 26, 2006.

First Quarter Highlights: All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP), unless otherwise noted. Condensed and consolidated financial tables are provided at the end of this release.

Revenues: First quarter 2007 consolidated revenues were €48.1 million, an increase of 70% versus first quarter 2006. This significant year-on-year increase is the result of strong organic growth, as well as revenue contributed from the acquired business that was not in Q1 2006. The bulk of the 12% quarter-on-quarter decrease was due to the fact that there had been licensing revenues recorded in the fourth quarter 2006 for a total of €4.4 million, as well as softening of the dollar. With previous quarter currency rate, Q1 2007 revenues would have been €48.5 million.

In the first quarter, product revenues represented 99% of total sales with a breakdown by region as follows: EMEA 54%; Americas 33%; and APAC 13%. The remaining 1% of total sales was generated by servicing fees. The customer portfolio remained balanced in the first quarter, with the top ten customers representing 53% of revenues as compared to 51% in the previous quarter. No single customer represented more than 10%.

Backlog: As expected, our 12-month backlog on March 31, 2007, increased significantly by 60% to €82.4 million, from €51.5 million as of December 31, 2006. This increase came from all regions, with the highest growth in the Americas.

Gross Margin: For the first quarter 2007, gross margin of €20.5 million represented 42.7% of sales compared to 45.6% in Q4 2006. This decrease was due mainly to the absence of significant high-margin licensing revenue that we saw in the fourth quarter 2006. The gross margin from products, however, increased significantly to 45.6% in Q1 2007 compared to 41.1% in Q4 2006 as margin contributed by the acquired business continued to improve.

Operating Expenses: Total operating expenses for the first quarter 2007 were €19.0 million, a decline from the fourth quarter level of €21.2 million. This decrease was due mainly to the fact that in the fourth quarter we recorded a sizeable accrual for employee bonuses. In addition we recorded no bad debt in the first quarter 2007.

Profit: Operating income for the first quarter 2007 was €1.6 million, declining from €3.8 million in the previous quarter, mainly due to the recognition in the previous quarter of sizeable licensing revenues. On a year-over-year basis, however, this result was significantly better than the operating income of €0.6 million for the first quarter 2006, owing to stronger revenues. Net income for the first quarter 2007 was €1.9 million compared to €3.1 million in previous quarter, and €0.2 million a year ago.
As shown in the above table, on a non-GAAP basis, which excludes stock option expenses and expenses related to our acquisition, the operating income would have been €3.4 million for the first quarter 2007, compared to €5.6 million for the previous quarter.

Balance sheet: Wavecom's cash position declined slightly quarter-on-quarter from €54.8 million to €53.7 million at March 31, 2007. Cash generated by the good results were compensated by some mitigating factors including the payment of performance bonuses and an increase in working capital, as inventory increased from €6.6 million at December 31, 2006 to €9.0 million at March 31, 2007 as a result of the transfer of most of the production from Mexico to our primary sub contractor in China.

Business news:

Q1 2007 Customer announcements:

  • Wavecom technology selected by PassTime™ USA for its latest payment assurance device, PassTime™ Elite, featuring the Wavecom Q2687 Wireless CPU®. The device harnesses the power of wireless machine-to-machine technology to help credit-troubled people own their own vehicles and mend their credit at the same time.
  • Wavecom announced that PSA Peugeot Citroën, a global leader in advanced automobiles, has selected Wavecom wireless technology for integration in its future generations of intelligent cars.
  • Wavecom announced the integration of its technology into the next generation of Yulon Nissan's telematics system called TOBE. This next generation of TOBE is an operator-serviced navigation, system integrating Wavecom's Wireless CPU®. This marks the first contract for Wavecom with an Asian automotive conglomerate for global automotive telematics solutions.
  • Arcom, Inc. and Wavecom, Inc. announced the selection of the Wavecom GR64 Wireless CPU® as the wireless technology for the Arcom ZyWAN asset tracking system. This robust, rugged tracking device offers comprehensive mobile asset tracking functionality, including vehicle location and mobile computing using global cellular connectivity.

Q1 2007 Product announcements:

  • Wavecom introduced the new Fastrack Supreme Wireless CPU®. This Plug & Play family product evolution keeps the same versatile form factor as the previous Fastrack product packed with a host of new features that will carry customer applications well into the future.
  • Wavecom announced an innovative embedded SIM solution that takes a major step in removing obstacles and stimulating wireless M2M and automotive market where traditional SIM cards are sometimes a point of failure risk. Wavecom was the first to demonstrate this technology, which fully embeds the SIM function into selected GSM Wireless CPU® models, and can be activated over-the-air.
  • Wavecom announced commercial availability of the Wavecom CM52 Wireless CPU®. Designed specifically for automotive applications, the CM52 operates within an extended temperature range and has a rugged build for extreme vibrations.

Q1 2007 Management announcement:

  • Wavecom announced the arrival of Emmanuel Walckenaer, a seasoned expert in the field of wireless service delivery and support to head-up its newest activity - RDMS, Remote Device Management Services.

Further commenting on the state of the business, Chantal Bourgeat, Wavecom CFO added, "Less than one-year post acquisition, we have re-established the strong product gross margin we had built in the historical Wavecom business. Our sales teams continue to win new business, our financial footing is solid and we are beginning to realize significant revenue momentum as evidenced by the strong quarter-on-quarter backlog growth."

Conference Call: Today at 3:00 p.m. Paris time, Wavecom management will host a conference call in English reserved for financial professionals commenting on its first quarter 2007. To access this call, please use the following numbers: +33 (0)1 70 99 42 67 in France, +44 (0)20 7365 1851 in the U.K. and +1 718 354 1152 in the U.S. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to the conference call commentary webcast (in English).

Wavecom will announce its Q2 2007 results on July 25, 2007 at 7:00 a.m. Paris time.

Financial Tables