SOURCE: WAVECOM

October 27, 2005 09:51 ET

Wavecom Announces Third Quarter 2005 Results

Revenues Up 4% Quarter-on-Quarter; Third Consecutive Quarter of Positive Operating and Net Profit

ISSY-LES-MOULINEAUX, FRANCE -- (MARKET WIRE) -- October 27, 2005 -- - Wavecom SA (NASDAQ: WVCM) (Euronext Eurolist compartment C: AVM; ISIN: FR0000073066), a leader in pre- packaged wireless communications solutions for automotive, industrial (machine-to-machine) and mobile professional applications, today announced financial results for its third quarter ended September 30, 2005.

Ron Black, chief executive officer commented "We are especially pleased to report a 4% growth in revenues quarter-on-quarter, for what is traditionally the slowest quarter of the year. The core vertical applications business grew in each region, indicating that we are continuing to win business across the board. In addition, we reported our third consecutive profitable quarter, continuation of high gross margins, and an improved cash position over the previous quarter. On the product front we announced our next generation Open AT® software, supporting EDGE and many new functions tailored to industrial markets. We believe our growing emphasis on software for industrial wireless communication is becoming a clear market differentiator."

Third Quarter 2005 Financial Highlights:

All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Condensed consolidated financial tables are provided at the end of this release.

Revenues: Third quarter 2005 revenues were EUR 31.9 million which is an increase of 4% from the previous quarter. This increase reflects a strong performance from our core vertical markets business which was EUR 28.6 million, or 90% of total revenues.

Sales increased in each of our three geographic regions, with a breakdown of regions as follows: EMEA (Europe, Middle-east and Africa): 59%, APAC (Asia-Pacific): 29% and The Americas: 12%.

The customer portfolio remained balanced with no single customer representing more than 9% of total revenues in the third quarter. The top ten customers, 4 of which are distributors, combined represented 56% of revenues as compared to 62% in the previous quarter.

Backlog: Backlog as of September 30, 2005 increased 19% to reach EUR 36.6 million, compared to EUR 30.8 million at the end of the previous quarter, and was made up of 90% vertical applications, compared to 77% at June 30, 2005. As noted previously by management, backlog consists of orders on hand for the next 12 months, but is not necessarily predictive of revenue in the quarter to come as we have significantly reduced our manufacturing cycle time and are able to deliver product much more quickly than in the past. For this quarter, however, we have begun to see signs of lead-times increasing for some components, such as flash memories, and therefore have communicated to customers that they need to place orders in a more timely manner in order to ensure delivery schedules.

Gross Margin: Gross margin was 48%, one percentage point higher as compared to the previous quarter. As in the past two quarters, gross margin exceeded our previously-stated model range of 33% to 35%. This continued high gross margin is the result of a number of factors, the most important being the Company's refining its product management process, eliminating low-margin products from the portfolio, and the sale of some previously-considered obsolete products.

Operating Expenses: Total operating expenses for the third quarter 2005 were EUR 13.1 million, compared to EUR 12.7 million in the second quarter 2005. The restructuring plans undertaken in 2004 were completed during the third quarter and accounted for expenses of EUR 0.2 million. Operating expenses for R&D, Sales and Marketing and G&A remained flat as compared to the second quarter of 2005.

Profit: Operating profit for the third quarter was EUR 2.1 million, compared to EUR 1.6 million of operating profit in the second quarter. Net profit for the third quarter was EUR 2.8 million, or EUR 0.19 per share, as compared to EUR 3.8 million, or EUR 0.25 per share, in the second quarter 2005. Wavecom recorded a net foreign exchange gain of EUR 0.4 million for the third quarter 2005, compared to a EUR 2.0 million gain in previous quarter.

Cash: Wavecom's cash position was EUR 60 million at September 30, 2005, increasing from EUR 57 million at June 30, 2005. This increase was a result of continued excellent operating performance in inventory reduction and supply chain management.

Business news:

--  Introduction of our latest OpenAT® software, which includes EDGE for
    the Q2687 module, as well as real-time OS, 9 power modes, memory expansion
    capabilities and multiple peripheral interfaces -- features  that are all
    tailored for industrial wireless solutions.
--  Commerciant, a US-based company selected Wavecom technology as the
    base for its newest point of sale payment terminals, a growing market in
    the U.S.
--  Extension of Wavecom's distributor network to include Acal for all of
    Northern Europe, now including the UK and Arrow Dicopel in Mexico.
--  Wavecom signed a joint marketing agreement with US-based Airbiquity,
    to address the growing wireless market for automobiles.
    
Outlook:

Wavecom management has identified numerous variables that can influence revenues in the current quarter including higher demand, potential licensing deals, a changing product mix and a tightening component supply. Based on current information, we expect revenues to increase moderately to strongly versus last quarter. Management added that gross margin for the fourth quarter of 2005 should continue to exceed 40%. Total operating expenses should be on the order of EUR 13.5 million to EUR 14.5 million.

General Assembly:

Wavecom plans to call a General Assembly of the shareholders shortly, in order to increase the cap price on the share buy-back program from EUR 10 to EUR 22.50 per share, given the current market price. In addition, approval will be sought to authorize various types of employee share equity programs as management intends to use equity as a key element of employee compensation.

Conference Call:

Today at 3:00 p.m. Paris time, Wavecom management will host a conference call commenting on its third quarter 2005 results. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to the conference call commentary webcast (in English).

Wavecom will announce its fourth quarter/full year 2005 results on February 9, 2006 at 7:00 a.m. Paris time to be followed in the afternoon by a conference call hosted by management commenting on the results.

About Wavecom

Wavecom is a leading worldwide leader in pre-packaged wireless communication solutions for automotive, industrial and mobile professional applications. Wavecom's solutions include all the software and hardware elements that are necessary to develop truly innovative wireless devices, as well as the development tools and services needed to bring them to market quickly and easily.

Founded in 1993 and headquartered near Paris in Issy-les-Moulineaux, Wavecom has subsidiaries in Hong Kong (PRC), San Diego (USA), and Darmstadt (Germany). Wavecom is publicly traded on Euronext Paris (Eurolist) in France and on the NASDAQ (WVCM) in the U.S. www.wavecom.com

This press release contains forward-looking statements that relate to the company's future business performance, operating expenses and financial results and objectives. Such forward-looking statements are based on the current expectations and assumptions of the company's management only and involve risk and uncertainties. Potential risks and uncertainties include, without limitation, whether the company will be commercially successful in implementing its strategic reorientation, whether there will be continued growth in the vertical markets and demand for the company's products, an unanticipated decrease in orders from one of the company's principal customers or customer cancellation or scale-down of a major project, the company's reliance on a single contract manufacturer in China for all production requirements, dependence on third parties, changes in foreign currency exchange rates, new products or technological developments introduced by competitors, customer and supplier concerns regarding the company's overall financial position, and risks associated with managing growth. Unfavorable developments in connection with these and other risks and uncertainties described in the Company's reports on file with the Securities and Exchange Commission could cause the company to not achieve the anticipated or targeted performance or results. As a consequence, the Company's actual performance and results may be materially different from those expressed by the forward-looking statements above.


                                WAVECOM S.A.
        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
           (in thousands, except for share and per share data)

Prepared in accordance with U.S. generally accepted accounting principles.


                                             Three months ended
                                  September 30,   June 30,    September 30,
                                      2004          2005          2005
                                   ----------    ----------    ----------
                                      Euro          Euro          Euro
Revenues :
   Product sales                       36 235        30 306        31 289
   Technology development and other
    services                              184           420           614
                                   ----------    ----------    ----------
                                       36 419        30 726        31 903
Cost of revenues :
   Cost of goods sold                  27 264        16 050        16 442
   Cost of services and licensing       1 825           334           220
                                   ----------    ----------    ----------
                                       29 089        16 384        16 662
                                   ----------    ----------    ----------
Gross profit                            7 330        14 342        15 241
Operating expenses :
   Research and development            10 187         6 034         5 646
   Sales and marketing                  4 108         2 910         2 757
   General and administrative           6 266         4 513         4 463
   Restructuring costs                  5 182          (711)          233
                                   ----------    ----------    ----------
      Total operating expenses         25 743        12 746        13 099
                                   ----------    ----------    ----------
Operating income (loss)               (18 413)        1 596         2 142
                                   ----------    ----------    ----------
Interest income and other
 financial income, net                    174           235           271
Foreign exchange gain, net                389         1 981           441
                                   ----------    ----------    ----------
      Total financial income              563         2 216           712
                                   ----------    ----------    ----------
Gain (loss) before minority
 interests and income taxes           (17 850)        3 812         2 854
Minority interests                          -             -             -
                                   ----------    ----------    ----------
Gain (loss) before income taxes       (17 850)        3 812         2 854
Income tax expense (benefit)              309            21             8
                                   ==========    ==========    ==========
Net income (loss)                     (18 159)        3 791         2 846
                                   ==========    ==========    ==========

Basic net gain (loss) per share         (1.18)         0.25          0.19
                                   ==========    ==========    ==========
Diluted net gain (loss) per share       (1.18)         0.24          0.18
                                   ==========    ==========    ==========

Number of shares used for
 computing :
   -basic net income (loss)
     per share                     15 342 435    15 349 945    15 349 945
   -diluted net income (loss)
     per share                     15 342 435    15 491 724    15 774 128



                            WAVECOM S.A.
       UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
          (in thousands, except for share and per share data)
Prepared in accordance with U.S. generally accepted accounting principles.


                                                        Nine months ended
                                                          September 30,
                                                        2004         2005
                                                  -----------  -----------
                                                        Euro         Euro
Revenues :
   Product sales                                      113 092       96 463
   Technology development and other services            1 017        1 144
   Licensing revenue                                        -        3 391
                                                  -----------  -----------
                                                      114 109      100 998
Cost of revenues :
   Cost of goods sold                                  84 315       53 530
   Cost of services and licensing                       5 490          613
                                                  -----------  -----------
                                                       89 805       54 143
                                                  -----------  -----------
Gross profit                                           24 304       46 855
Operating expenses :
   Research and development                            38 641       17 549
   Sales and marketing                                 11 721        8 715
   General and administrative                          24 323       13 491
   Impairment of intangible assets                      1 768            -
   Restructuring costs                                 11 431        1 607
                                                  -----------  -----------
      Total operating expenses                         87 884       41 362
                                                  -----------  -----------
Operating income (loss)                               (63 580)       5 493
                                                  -----------  -----------
Gain on sales of long-term investments                  1 166            -
Interest income and other financial income, net         1 349          761
Foreign exchange gain, net                              2 846        3 869
                                                  -----------  -----------
   Total financial income                               5 361        4 630
                                                  -----------  -----------
Gain (loss) before minority interests and
 income taxes                                         (58 219)      10 123
Minority interests                                          -            -
                                                  -----------  -----------
Gain (loss) before income taxes                       (58 219)      10 123
Income tax expense (benefit)                               47          408
                                                  -----------  -----------
Net income (loss)                                     (58 266)       9 715
                                                  ===========  ===========

Basic net gain (loss) per share                         (3.81)        0.63
                                                  ===========  ===========
Diluted net gain (loss) per share                       (3.81)        0.62
                                                  ===========  ===========

Number of shares used for computing :
   - basic net income (loss) per share             15 309 144   15 349 945
   - diluted net income (loss) per share           15 309 144   15 571 751


                            WAVECOM S.A.
           UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                           (in thousands)
              Prepared in accordance with U.S. generally
                    accepted accounting principles.

                                         At December 31,  At September 30,
                                                2004             2005
                                                ----             ----
                                                Euro             Euro
ASSETS

Current assets :
  Cash and cash equivalents                    53 318           60 012
  Accounts receivable, net                     22 864           23 678
  Inventory, net                               16 409            7 577
  Value added tax recoverable                   1 102              546
  Prepaid expenses and other current assets     5 481            5 074
                                              -------          -------
     Total current assets                      99 174           96 887

Other assets :
  Other intangible and tangible assets, net    12 617            7 123
  Long-term investments                         9 017            3 566
  Other assets                                  5 295            4 237
  Research tax credit                           1 486            1 532
  Deferred tax assets                           9 617            9 617
                                              -------          -------
     Total assets                             137 206          122 962
                                              =======          =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities :
  Accounts payable                             36 393           28 091
  Accrued compensation                          8 089            5 674
  Other accrued expenses                       32 217           21 649
  Current portion of capitalized
  lease obligations                               466              282
  Deferred revenue and advances received
   from customers                                 820              334
  Other liabilities                               731              283
                                              -------          -------
     Total current liabilities                 78 716           56 313

Long-term liabilities :
Long-term portion of capitalized
 lease obligations                                302              115
Other long-term liabilities                     1 732            1 406
                                              -------          -------
     Total long-term liabilities                2 034            1 521

Minority interests                                  -                -

Shareholders' equity :
Shares, Euro 1 nominal value,
 15,511,518 shares authorized, issued
 and outstanding at September 30, 2005
 (15,506,290 at December 31, 2004)             15 506           15 512
Additional paid-in capital                    137 039          137 057
Treasury stock at cost (156,345 shares
 at September 30, 2005 and December
 31, 2004)                                     (1 312)          (1 312)
Retained deficit                              (93 344)         (83 629)
Accumulated other comprehensive loss           (1 433)          (2 500)
                                              -------          -------

   Total shareholders' equity                  56 456           65 128
                                              -------          -------
   Total liabilities and shareholders'
    equity                                    137 206          122 962
                                              -------          -------


                            WAVECOM S.A.
        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (in thousands)
              Prepared in accordance with U.S. generally
                    accepted accounting principles.

                                           Nine months ended September 30,
                                                   2004          2005
                                                   ----          ----
                                                   Euro          Euro
Cash flows from operating activities :
Net income (loss)                                (58 266)        9 715
Adjustments to reconcile net income
 (loss) to net cash provided from
operating activities :
  Amortization of intangible and
   tangible assets                                12 503         5 430
  Reversal of impairment of tangible assets         (716)         (236)
  Loss on sales and retirement of tangible
   assets                                             19         1 057
  Reversal of long term investment
   depreciation                                     (550)            -
  Impairment of intangible assets                  1 768             -
  Amortization of deferred stock-based
   compensation                                      350             -
  Net decrease in cash from working capital
   items                                          (7 364)      (13 766)
                                                  ------        ------
     Net cash providied (used) by operating
      activities                                 (52 256)        2 200
                                                  ------        ------

Cash flows from investing activities :
  Acquisition (disposal) of long term
   investments                                       (79)        5 451
  Purchase of minority interest in Arguin         (1 768)            -
  Purchases of intangible and tangible
   assets                                         (3 185)       (1 429)
  Proceeds from sale of intangible and
   tangible assets                                    28           851
  Proceeds from sale of long term investments      1 638             -
                                                  ------        ------
     Net cash provided by (used in) investing
      activities                                  (3 366)        4 873
                                                  ------        ------
Cash flows from financing activities :
  Principal payments on capital lease obligations   (704)         (363)
  Proceeds from exercise of stock options and
   founders' warrants                                712            24
                                                  ------        ------
     Net cash provided by (used in) financing
      activities                                       8          (339)
Effect of exchange rate changes on cash and
 cash equivalents                                    (93)          (40)
                                                  ------        ------
Net increase (decrease) in cash and cash
 equivalents                                     (55 707)        6 694
Cash and cash equivalents, beginning of
 period                                          110 705        53 318
                                                  ------        ------
Cash and cash equivalents, end of period          54 998        60 012
                                                  ------        ------

Contact Information

  • For further information please contact:

    Lisa Ann Sanders
    Director, Communications and Investor Relations
    Tel. +33 1 46 29 41 81
    Email Contact

    John D. Lovallo
    Lovallo Communications Group, LLC
    Tel: + 1 203-431-0587
    Email Contact