Wavecom Announces Fourth Quarter and Full Year 2007 Financial Results

Company continues to deliver strong profitability quarter on quarter. Net income increased to €17.4 million from € 4.7 million year-on-year.
Issy-les-Moulineaux, France-February 07, 2008

Wavecom S.A. today announced financial results for its fourth quarter and full year 2007 ending December 31, 2007.

Ron Black, Wavecom Chief Executive Officer, commented: "During 2007 we continued to deliver on our promise of operating a very profitable business, which is demonstrated by our 10% operating margin on a non-GAAP basis for the full year, compared to a 6% operating margin on a non-GAAP basis in 2006. Although we are not pleased with our recent revenue progression, the Americas unit did record a particularly strong 57% increase year-on-year at constant currencies. In addition, the solid financial footing of the company, in particular our strong cash reserves, position us to make strategic acquisitions such as the recently announced purchase of Anyware Technologies, moving Wavecom further up the value chain."

In millions of euros Under US GAAP Consolidated Group Results
  Q4 2006 Q3 2007 Q4 2007 Full year 2006 Full year 2007
Revenues 54.8 52.4 45.7 188.8 202.3
Gross profit 25.0 23.7 23.2 80.3 91.9
Operating expenses 21.2 19.6 20.9 74.6 79.2
Operating income 3.8 4.1 2.3 5.6 12.7
Net income 3.1 3.3 7.1 4.7 17.4

Additional information
Operating income 3.8 4.1 2.3 5.6 12.7
Stock based related expenses (0.7) (1.7) (1.7) (2.1) (4.8)
Acquired technology - - - (1.4) -
Amortization expense related to acquisition (1.1) (0.8) (0.8) (3.1) (3.5)
Operating income before stock based compensation and amortization expense related to acquisition 5.6 6.6 4.8 12.2 21.0

Fourth 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: Revenues for the full year 2007 increased 7% year-on-year reaching €202.3 million, or 12% at constant currencies, as the weak U.S. dollar had a negative impact of approximately €9 million on 2007 sales as compared with 2006 exchange rates. In the fourth quarter 2007 revenues declined 16% versus fourth quarter 2006, or 11% at constant currencies. Revenues in the fourth quarter 2007 of €45.7 million also declined sequentially by 13% versus the previous quarter, or 10% at constant currencies. For the fourth quarter 2007, revenues from services accounted for €1.2 million and €3.8 million for the full year 2007. These service revenues were primarily generated by the recognition of revenue from a customer with whom we continue to have an ongoing substantial development contract.

The positive year-over-year revenue trend was driven by the significant progress in the Americas region which was fueled by the home and security market as well as vehicle remote management. In addition, one particular customer completed delivery of a large program in 2007. The APAC region grew by 3% (at constant currencies) led by a positive sell-through of point of sale and automatic metering, although the wireless local loop sector decreased by approximate €5 million year-on-year as the market contracted. The 3% year-on-year decline in revenues in the EMEA region was mainly the result of weaker than expected sell-through of end products in particular EMEA manufacturers’ of fixed-voice applications.

In the fourth quarter, the breakdown of product revenues by region was as follows: EMEA 50%, Americas 30% and APAC 20%. This balance was similar for the full-year breakdown of: EMEA 48%, Americas 35% and APAC 17%.

For the fourth quarter, revenues from the top ten customers represented 57% of the total and 50% for the full year. For the full year, no customer represented more than 9% of sales where 6 were direct customers and 4 were value-added distributors.

Backlog: The 12-month backlog on December 31, 2007 was €41.7 million compared to €52.3 million at September 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 fourth quarter 2007 gross profit amounted to € 23.2 million, representing 50.7% of sales compared to 45.3% in Q3 2007. The gross margin from products also increased incrementally to 51.6% of sales compared to 46.5% the previous quarter, mainly explained by a more favorable product and country mix. When looked at on an annual basis, the gross margin for 2007 was 45.4% compared to 42.5% in 2006 and the gross margin from products also increased to 47.3% of sales compared to 41.4% the previous year, mainly driven by the continuation of the improvement of the gross margin on the business acquired in 2006.

Operating Expenses: Total operating expenses for the fourth quarter 2007 of €20.9 million were slightly higher than the third quarter 2007 of €19.6 million, and slightly lower than fourth quarter 2006 level of €21.2 million. Included are stock-based related expenses totaling €1.7 million, flat to the third quarter 2007. At December 31, 2007, headcount (salaried employees) stood at 418 decreasing slightly from 421 September 30, 2007.

Profit: Operating income for the fourth quarter 2007 was €2.3 million, decreasing from €4.1 million in the previous quarter, representing 4.9% of sales. This decline is linked to the lower sales during the quarter. On a year-over-year basis, this operating result was lower than the €3.8 million of the fourth quarter 2006 which was positively impacted by licensing revenues amounting to €4.4 million. In the fourth quarter 2007, we recognized a deferred tax asset amounting to €4.5 million, in application of generally accepted accounting principles.

On a net basis, income for the fourth quarter 2007 was €7.1 million, compared to €3.3 million in previous quarter, and €3.1 million for the same period the year before. For the full year, net income increased 270% to €17.4 million from €4.7 million 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 €4.8 million for the fourth quarter 2007, compared to €6.6 million for the previous quarter and €5.6 million a year ago. On a full year comparison basis non-GAAP operating income grew from €12.2 million in 2006 to €21.0 million, or 72% for the full year 2007.

Balance sheet: Wavecom’s cash and marketable securities position increased quarter-on-quarter from €137.5 million to €139.3 million at December 31, 2007. Inventory decreased incrementally to €6.1 million compared with €8.8 million the previous quarter; DSOs (Days Sales Outstanding) were 58 days compared with 53 days the previous quarter.

Outlook:

Chantal Bourgeat, Wavecom CFO, concluded: "We are encouraged by our continued solid profitability which remains a primary objective for Management." Ms. Bourgeat added: "We were pleased to have recently completed a key strategic acquisition that should accelerate the development of our services offer."

Business news:

Wavecom S.A. acquired Anyware Technologies, an industry leader in machine-to-machine (M2M) client-server software solutions located in Toulouse, France. Anyware Technologies is a recognized leader in developing M2M software solutions for customers who use wireless technology to enhance business processes. Anyware Technologies’ M2M-specific solutions perfectly compliments Wavecom’s secure and scalable Intelligent Device Services (IDS) platform, with the combination creating the most advanced end-to-end software solution in the industry.

Ingenico and Wavecom signed a MOU for co-development of future wireless payment electronics terminals. As industry demand for cost effective and innovative payment systems grows, two leaders are combining forces to establish a platform for a new generation of wireless electronic payment system architecture.

Wavecom introduced its Q64 Wireless CPU®, an enhanced version of the GR64 that is powered by Wavecom’s Wireless Microprocessor® WMP100. The new Q64 Wireless CPU® has increased processing power (up to 85 MIPS available for embedded customer applications) and the Open AT® RTOS (Real Time Operating System) that allows customers to natively execute C-based applications directly on the Wireless CPU®.

Sunlink International Holdings Limited selected Wavecom’s Wireless CPU® Q24 Plus for their intelligent dispatch system for the taxi industry called TAXI4U.

Wavecom launched its "Centers of Excellence" (CoE) program aimed at building a worldwide network of design partners to facilitate adoption of wireless machine-to-machine technologies. The new partnership program emphasizes bridging the technology gaps that many new wireless machine-to-machine projects encounter.

The Company made available its Open AT® Lua Plug-In specifically targeting developers of smart, connected devices who chose to use an interpreted programming environment. Wavecom now offers developers access to Lua – one of the fastest scripting language to develop with – free of charge, including source code delivery under the terms of the MIT (Massachusetts Institute of Technology) open-source license.

Wavecom launched a new partnership program by signing agreements with two engineering schools: Ngee Ann Polytechnic, Singapore, and the University of Technology of Ho Chi Minh City, Vietnam.

The Company gained membership in the MOV’EO competitiveness hub. MOV’EO groups together a number of French businesses in the transport and automotive sectors for promoting economic and industrial development.

Silicon Controls selected Wavecom’s Wireless CPU® – Q24Plus for their remote tank monitoring system. The GASLOG® telemetry system, which integrates a Wavecom Wireless CPU® with GSM/GPRS capability, permits the continuous logging of tank levels, gas usage and other status information from a remote location via cellular communication networks.

Wavecom launched Fastrack Extreme an HSDPA (or 3.5G) version of its Plug-and-Play Wireless CPU®. The new product offers high speed with Open AT® and upgrade functionality via Wavecom’s Intelligent Device Service for investment protection.

Conference Call and presentation:

Today at 2:30 p.m. (Paris time) Wavecom management will host a conference call in English reserved for financial professionals commenting on its fourth quarter 2007. To access this call, please use the following numbers: +33 (0) 1 70 99 43 01 in France, +44 (0) 20 7806 1968 in the U.K. and +1 718 354 1387 in the U.S. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to the conference call commentary webcast (in English).

This call will be followed by a presentation to the financial community in Paris by Wavecom management at 4:00 pm.

Wavecom will announce its first quarter 2008 results on April 23, 2008 at 7:00 a.m. Paris time.