Wavecom Announces Second Quarter 2007 Financial Results

Continued quarter-on-quarter and year-on-year revenue growth with another Strong quarter-end 12-month backlog
Issy-les-Moulineaux, France -July 25, 2007

Wavecom S.A., today announced financial results for its second quarter ending June 30, 2007.

Ron Black, Wavecom Chief Executive Officer, commented, “Our second quarter and first half 2007 financial results confirmed the solid progress that Wavecom has achieved over the past three years, illustrating once again growth, both organic and external. Furthermore, in early July the issue of convertible bonds (OCEANE) in the European market, raising €80.5 million, confirmed market confidence in our long-term strategies. We see Wavecom’s role as one of market consolidator and are actively seeking out opportunies for growth among businesses that have natural adjacencies with our current activities.”

For comparative purposes, we believe it is important to review this quarter's results showing the effect of the acquired activity and reflecting the impact of certain expenses related to stock-based compensation and certain recognized intangible assets as indicated in the charts below.

In millions of euros
Under US GAAP

Consolidated Group Results

 

Q2 2006*

Q1 2007

Q2 2007

h1 2007

Revenues

49,9

48,1

56,1

104,2

Gross profit

20,4

20,5

24,4

44,9

Operating expenses

19,8

19,0

19,6

38,6

Operating income

0,7

1,6

4,8

6,3

Net income

0,2

1,9

5,0

7,6

*Note: Q2 2006 results included 2 months of an acquired business.

Additional information

Operating income

0,7

1,6

4,8/

6,3

Stock option-related expenses

(0,4)

(6,7)

(0,6)

(1,3)

Acquired technology

(1,4)

--

--

--

Amortization expense related to acquisition

(0,8)

(1,1)

(0,8)

(1,9)

Operating income before stock-option compensation and amortization expense related to acquisition

3,3

3,4

6,2

9,5

Second 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: Second quarter 2007 consolidated revenues were €56.1 million, an increase of 12% versus second quarter 2006 or 16% at constant exchange rates. This year-on-year increase reflects solid organic growth. The second quarter 2007 revenues also increased by 17% versus the previous quarter (or 18% at constant currencies), where the largest increase in value came from the Americas region (+ €4 million or +25%) and the largest quarter-on-quarter increase in percentage came from the Asia-Pacific region (+44% or + €2.7 million). These strong performances were offset somewhat by slower sequential growth in the EMEA region (+5% or + €1.3 million).

Sales of new generation products, based on a more powerful ARM9 processor and Wavecom’s own Open AT Software Suite are taking hold. Successful migration to these new products is progressing, in large part due to their flexibility and forward compatibility with existing product lines.

In the second quarter, the breakdown by region was as follows: EMEA 49%; Americas 35%; and APAC 16%. The customer portfolio remained balanced in the second quarter, with the top ten customers representing 51% of revenues as compared to 53% in the previous quarter. No single customer represented more than 8%.

Backlog: As expected, our 12-month backlog on June 30, 2007, declined from the extremely strong Q1 total of €82.4 million to €70.9 million as of June 30, 2007. It should be noted that the reported average quarter-end for the first two quarters of 2007 of €76.7 million is significantly higher than the average quarter-end post-acquisition backlog in 2006 of € 50.8 million.

Gross Margin: For the second quarter 2007, gross margin of €24.4 million represented 43.4% of sales compared to 42.7% in Q1 2007. The gross margin from products remained virtually flat at 46.0% compared to 45.6% in Q1 2007.

Operating Expenses: Total operating expenses for the second quarter 2007 were €19.6 million, a flat to the first quarter 2007 level of €19.0 million. At June 30, 2007 headcount (salaried employees) stood at 410 increasing slightly from 401 at March 31, 2007.

Profit: Operating income for the second quarter 2007 was €4.8 million (8% operating margin as a percentage of revenues), increasing from €1.6 million (3% operating margin as a percentage of sales) in the previous quarter, mainly due to the higher revenues. On a year-over-year basis, this result was significantly better than the operating profit of €0.7 million in the second quarter 2006. Net income for the second quarter 2007 was €5.0 million compared to €1.9 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 €6.2 million for the second quarter 2007, compared to €3.4 million for the previous quarter. It should be noted that stock options that were awarded at the end of the second quarter 2007 had a higher strike price due to Wavecom’s stock price appreciation which is expected to put pressure on the operating results in the second half of the year. We expect to see an impact of €1.8 million per quarter for Q3 and Q4 versus € 0.6 million in Q2.

Balance sheet: Wavecom’s cash position increased quarter-on-quarter from €53.7 million to €56.1 million at June 30, 2007 while inventory remained virtually flat at €9.2 million compared to the previous quarter and DSO (Day sales outstanding) improved by 5 days.

OCEANE (Convertible Bond issue): Wavecom announced the successful completion of a convertible bond issue on July 17, 2007. The issue raised a total of €80.5 million which will be used for future growth including possible acquisitions of companies along the value chain.

Business news:

Recent announcements:

  • Wavecom named Microteck as its primary distributor in Japan for the entire range of machine-to-machine (M2M) and automotive wireless communication solutions including GSM/GPRS and CDMA. Microtek is well-positioned to tap into the rapidly-expanding Japanese market. Microtek will now provide Wavecom’s leading-edge wireless communications solutions to Japanese OEMs that make a wide range of products from security and alarm systems to fleet management and automotive telematics applications
  • Wavecom and Sunlink announced a strategic alliance. Sunlink International Holdings Limited and Wavecom S.A. announced the creation of Sunlink Wavecom Limited, a strategic alliance to develop and support wireless machine-to-machine applications based on Wavecom’s OpenAT® Software suite and Wireless CPU® hardware. The new company, Sunlink Wavecom Limited (90.5% - 9.5%, respectively) was formed with an initial investment of $1 million US. It will provide support, maintenance and application-design services specifically using Open AT® Software Suite and reference designs from Wavecom. Sunlink Wavecom Limited will be incorporated in Hong Kong with its operations located in Shen-Zhen, China, and will initially employ a staff of 20 engineers and technical support specialists.
  • Wavecom announced the launch of the Q26 Ultra its fully programmable 3G Wireless CPU®, the Q26Ultra, using high bandwidth cellular capabilities to address the growing automotive and alarm/security markets. With wideband CDMA functionality, it bridges the entire spectrum of bearers from 2G, 2.5G, 2.75G and 3G. It targets two growing markets for connected machine-to-machine applications: automotive and security. With this new product, Wavecom is the only wireless provider today to offer an automotive-grade design and qualification that will allow car makers to meet the demand for in-vehicle infotainment. For the security market, the high band-with capacity makes it ideal for video cameras in sophisticated alarm and security systems.


Chantal Bourgeat, Wavecom CFO commented: “We are pleased by both our second quarter and first half-year performance and the long-term outlook for the business is positive. The recent addition of financial resources now positions us for targeted external growth.” Ms. Bourgeat reiterated, “The underlying business is generated from diverse markets and customers’ adoption rates differ, implying possible fluctuations in revenues from one quarter to the next. Additional factors impacting quarterly sales and performance are seasonality and exchange rate fluctuations.”

Conference Call:

Today at 2:30 p.m. Paris time, Wavecom management will host a conference call in English reserved for financial professionals commenting on its second quarter 2007. To access this call, please use the following numbers: +33 (0) 1 70 99 42 67 in France, +44 (0) 20 7138 0845 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 Q3 2007 results on October 24, 2007 at 7:00 a.m. Paris time.