Wavecom Announces Third Quarter 2007 Financial Results

Net Income soars in the first 9 months of 2007 to €10.3 million from €1.6 million on a year-on-year comparison
Issy-les-Moulineaux (France) -October 24, 2007

Wavecom S.A. today announced financial results for its third quarter ending September 30, 2007.

Ron Black, Wavecom Chief Executive Officer, commented, "We are pleased with the strong profitiblity we achieved in the third quarter, despite sequentially lower sales. The anticipated weakness in the EMEA region was offset by very good performance in APAC and an outstanding quarter in the Americas region which grew 30% compared to the same quarter in 2006, at constant currencies." He highlighted, "The significant announcement of our StarService offer, which is built on services and recurring revenue, marks a new business model for the industry that should attract new players to the market and add significant value to our customers."

In millions of euros Under US GAAP Consolidated Group Results
  Q3 2006 Q2 2007 Q3 2007 9 months 2006 9 months 2007
Revenues 55.9 56.1 52.4 134.0 156.6
Gross profit 19.9 24.4 23.7 55.3 68.7
Operating expenses 19.3 19.6 19.6 53.4 58.2
Operating income 0.6 4.8 4.1 1.9 10.4
Net income 1.2 5.0 3.3 1.6 10.3

Additional information
Operating income 0.6 4.8 4.1 1.9 10.4
Stock based related expenses (0.7) (0.6) (1.7) (1.4) (3.1)
Acquired technology - - - (1.4) -
Amortization expense related to acquisition (1.2) (0.8) (0.8) (1.9) (2.7)
Operating income before stock based compensation and amortization expense related to acquisition 2.5 6.2 6.6 6.6 16.2

Third Quarter 2007 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: Third quarter 2007 consolidated revenues were €52.4 million, a decrease of 6% versus third quarter 2006, or 1.6% at constant currencies, as the weak U.S. dollar had a negative impact of around €2.6 million compared to the same period a year ago. Revenues in the third quarter 2007 also declined sequentially by 7% versus the previous quarter, or 6% at constant currencies. This decline can be partly explained by a typically slow summer period, as well as the fact that some of our European customers, who export in US dollars, have been adversely impacted by the weakness in this currency and have been reluctant to place advance firm orders. For the first nine months of 2007, consolidated revenues increased 17% to €156.6 million, compared to the same period in 2006, or 22% at constant currencies.

Services accounted for €2.0 million in the quarter, of which the main part was generated by the recognition of revenue from a customer with whom we have an ongoing substantial development contract.

In the third quarter, the breakdown of product revenues by region was as follows: EMEA 40%; Americas 41%; and APAC 19%.

The customer portfolio remained balanced in the third quarter, with the top ten customers, six of which are direct, representing 58% of revenues as compared to 51% in the previous quarter, and no single customer represented more than 10%.

Backlog: The 12-month backlog on September 30, 2007 of €52.3 million increased slightly from the year ago period (€49.2 million at September 30, 2006) but decreased sequentially from €70.9 million at June 30, 2007. It should be noted that backlog as of any particular date may not be an accurate indicator of sales for a given future period.

Gross Margin: For the third quarter 2007 gross margin amounted to €23.7 million, representing 45.3% of sales compared to 43.4% in Q2 2007. The gross margin from products increased incrementally to 46.5% of sales compared to 46.0% the previous quarter.

Operating Expenses: Total operating expenses for the third quarter 2007 were sequentially flat compared to the second quarter 2007 at €19.6 million, which were in-line with the third quarter 2006 level. Included are stock based related expenses totaling €1.7 million, compared to €0.6 million in the second quarter 2007. At September 30, 2007, headcount (salaried employees) stood at 421 increasing from 410 at June 30, 2007.

Profit: Operating income for the third quarter 2007 was €4.1 million, decreasing from €4.8 million in the previous quarter, remaining flat at 8% of sales. On a year-over-year basis, this operating result was significantly better than that of the third quarter 2006, which was of €0.6 million. Net income for the third quarter 2007 was €3.3 million, compared to €5.0 million in previous quarter, and €1.2 million a year ago. For the first nine months of 2007, net income was €10.3 million, compared to €1.6 million in the same period in 2006. As shown in the above table, on a non-GAAP basis, excluding stock based related expenses and expenses related to our acquisition, the operating income was €6.6 million for the third quarter 2007, compared to €6.2 million for the previous quarter and €2.5 million a year ago. On a 9-month comparison basis non-GAAP operating income grew from €6.6 million in 2006 to €16.2 million.

Balance sheet: Wavecom's cash position increased quarter-on-quarter from €56.7 million to €137.5 million at September 30, 2007. Most of the cash increase is due to the convertible bond issue completed in early July 2007, which added a net amount of €78.0 million to our cash reserves in the third quarter 2007 while a liability associated with the long-term portion of the loan was also accounted for in the third quarter of 2007. A total of €7.5 million was used this quarter to buy back Wavecom stock. Inventory decreased incrementally to €8.8 million compared with €9.2 million the previous quarter; DSOs (Days Sales Outstanding) were at 53 days compared with 55 days the previous quarter.

Business news:

StarService Launch:

Emmanuel Walckenaer, V.P. of Intelligent Devices Services, commented on the Wavecom's announcement of StarService, "The launch of this exciting new offer sets the stage for a whole new business model in the industrial and automotive wireless markets. With StarService we are eliminating the upfront investment by offering our newest Wireless Microprocessor 50 free of charge with a subscription to our service contract. Market reaction to the offer has been extremely positive." He continued, "We were particularly pleased that two wireless operators, Jasper and Numerex, both of whom specialize in M2M communication, are enthusiastic to work along with us in expanding the market for wireless machine to machine communication."

  • Wavecom S.A. announced the launch of StarService, a new product and service offer, which includes a Wireless Microprocessor® and a subscription to Wavecom's secure Intelligent Device Service (IDS). The first StarService offer comes with a new Wavecom Wireless Microprocessor® , WMP50, which is included free of charge as part of the package. This new ARM9-based device has been specifically designed for high-volume industrial M2M and automotive applications. It runs the Open AT® Software Suite, which enables customers to develop embedded applications, and is expandable with a rich set of plug-ins. Samples of the WMP50 are available now.
  • Jasper Wireless and Wavecom announced the initial step in building a global partnership for the first all-in-one wireless machine to machine (M2M) infrastructure. By combining the new Wavecom StarService with the Jasper Wireless global service platform, customers get everything they need to connect and manage their machines wirelessly from day one. This connectivity service will be possible using the new Wavecom Wireless Microprocessor® 50 with inSIM™ (embedded SIM), the secure Wavecom Intelligent Device Services, and immediate access to the Jasper Wireless service platform for connecting and managing machines around the world.
  • Wavecom and Numerex Corp. announced that Numerex will provide the revolutionary new Wavecom StarService for customers in North America. The Wavecom StarService will be delivered over Numerex's wireless network allowing users to remotely manage their wireless devices securely over-the-air (OTA). Easily integrated into customers' existing back-end applications, the service will enable users to remotely upgrade firmware and application software, configure devices, and implement remote diagnostics.

Other recent announcements:

  • Wavecom and Bouygues Telecom announced certification of Wavecom's newest families of Wireless CPU® s on the Bouygues Telecom wireless network, thus further opening the market for wireless machine-to-machine communication in France. The announcement reinforces Bouygues Telecom's commitment to development of the market for communicating machines.
  • Airbiquity, Inc. and Wavecom S.A., announced a partnership in which Airbiquity provides Wavecom SA with their GSM and CDMA in-band modem software technology. As a result of this global licensing agreement, the two companies will be able to offer complete end-to-end data communication solutions that reduce overall development time for customers.
  • Wavecom SA and PEIKER Acustic GmBH announced that the BMW Group will integrate embedded hands-free telephone capability into future lines of passenger cars using a Peiker telephone kit with Wavecom wireless technology.
  • Wavecom S.A. announced that its development teams have been evaluated CMMI level 2 (Capability Maturity Model Integration) by an independent appraiser for software development processes.
  • Avnet Memec announced the extension of its distribution agreement with Wavecom SA. The strategic partnership will be extended to Germany, France, Austria and Switzerland. This expanded agreement reinforces the already strong position of Avnet Memec as Wavecom distributor in Italy, Greece and Turkey.
  • Wavecom S.A. integrated in Sunlink's KENJI KJ-8800 tracking terminal. The KENJI KJ 8800 watercraft tracking terminal has integrated the Wavecom Q2686 Wireless CPU® with C-GPS companion software protocol stack and GPS chips making it a complete GSM/GPRS/GPS solution. The C-GPS chipset receives location data, performs the preliminary data processing and forwards it to the Wavecom Wireless CPU® for transmission via cellular networks.

Chantal Bourgeat, Wavecom CFO, concluded: "We are feeling positive about the business as many projects we have been working on for a long time are beginning to come together." Ms Bourgeat added, "We continue to pursue strategic acquisitions that could further build our customer base and enhance our technology offerings."

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 third quarter 2007. To access this call, please use the following numbers (access code: 4203387): +33 (0) 1 70 99 42 95 in France, +44 (0) 20 7806 1967 in the U.K. and +1 718 354 1391 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 Q4 and Full year 2007 results on February 7, 2008 at 7:00 a.m. Paris time.