Wavecom Announces Third Quarter 2006 Financial Results
Wavecom SA (Paris:AVM) (NASDAQ:WVCM) (ISIN:FR0000073066), a leader
in wireless communication solutions for automotive, industrial
(machine-to-machine) and mobile professional applications, today
announced financial results for its third quarter ending September 30,
2006.
Ron Black, Wavecom Chief Executive Officer, commented, "We are
pleased once again to post strong revenue growth in the third quarter
of 2006. Furthermore, the overall positive financial results were
driven by the successful integration of the acquired Sony Ericsson M2M
business, which is well on track". He added, "We continue to see
strong design win momentum from our newest products, including our
Wireless Microprocessor(R), the most advanced, high performance
embedded processor that combines wireless connectivity in a single
component."
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In millions of euros Historical Consolidated Consolidated
Under US GAAP Wavecom results results
-------------------------------------------- ------------ ------------
Q3 2005 Q2 2006 Q3 2006
-------------------------------------------- ------------ ------------
Revenues 32.4 49.9 55.9
-------------------------------------------- ------------ ------------
Gross profit 15.7 20.4 19.9
-------------------------------------------- ------------ ------------
Operating expenses 13.1 19.8 19.3
-------------------------------------------- ------------ ------------
Operating income 2.6 0.7 0.6
-------------------------------------------- ------------ ------------
Net income 3.3 0.2 1.2
-------------------------------------------- ------------ ------------
Additional information
-------------------------------------------- ------------ ------------
Operating income 2.6 0.7 0.6
-------------------------------------------- ------------ ------------
Stock option-related expenses -- (0.4) (0.7)
-------------------------------------------- ------------ ------------
Amortization expense related to
acquisition -- (2.2) (1.2)
============================================ ============ ============
Operating income before stock-
option compensation and
amortization expense related to
acquisition 2.6 3.3 2.5
-------------------------------------------- ------------ ------------
*Note: The above consolidated results include three months (July,
August and September) for the acquired business in Q3 2006 and two
months (May and June) in Q2 2006.
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Third Quarter 2006 Highlights:
All figures are un-audited 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. Wavecom consolidated financials for the third
quarter 2006 include three months of results associated with the
acquisition of certain assets of Sony Ericsson's M2M business unit
which closed on April 26, 2006.
Revenues: Third quarter 2006 consolidated revenues were EUR 55.9
million, an increase of 12% from the second quarter 2006 and 73% from
third quarter 2005. Increase in volumes is coming from new designs
that our customers have been working on over the past 24 months. The
Americas region, with revenues of EUR 17.3 million led the growth with
a 39% quarter-on-quarter increase, while APAC posted a 25% increase,
marking its best quarterly performance since we exited the handset
business in 2004.
The breakdown of revenues by region in the third quarter was as
follows: EMEA 47%; APAC 22%; and Americas 31%. The customer portfolio
remained balanced, with the top ten customers, three of which have
come with the acquisition, representing 52% of revenues as compared to
49% in the previous quarter.
Backlog: Our 12-month backlog, on September 30, 2006 stood at EUR
49.2 million compared to EUR 51.6 million as of June 30, 2006. The
decrease is primarily in the APAC and EMEA regions coming from a
variety of reasons, particularly the reorganization of our regional
distributor network.
Gross Margin: Gross margin for the consolidated business was EUR
19.9 million or 35.6% of revenues compared to 40.9% in the second
quarter. This decline was primarily due to product mix as we had a
full three months of revenue from the acquired business' lower-margin
products compared to two months in the previous quarter. In addition,
we took reserves for excess and obsolete (E&O) inventory that
decreased the margin by nearly 2 percentage points mainly linked to
the integration of the acquired businesses' manufacturing activities.
Operating Expenses: Total operating expenses for the third quarter
2006 were EUR 19.3 million, a slight decrease from the second quarter
level of EUR 19.8 million. This decrease was due mainly to the fact
that the previous quarter had a one-time charge for acquired
in-process technology. Expenses for R&D, G&A and Sales & Marketing
were all flat compared to the previous quarter, despite the fact that
we carried one additional month of the acquired business. In addition,
there was a small restructuring charge, EUR 38 thousand, related to
the consolidation of our America's region operations into new offices
in Research Triangle Park, North Carolina (USA). We expect to complete
the transfer of our R&D teams from San Diego to North Carolina by the
end of 2006.
As indicated in the table above, during the third quarter 2006, we
continued to have a number of accounting charges related to stock
option expenses totaling EUR 0.7 million and to the depreciation of
the acquired intangible assets for EUR 1.2 million.
Profit/(loss): Operating income for the third quarter was EUR 0.6
million, flat to the previous quarter. Net income for the third
quarter 2006 was EUR 1.2 million, showing an increase versus the EUR
0.2 million from the previous quarter, as we recorded a net foreign
exchange gain of approximately EUR 0.4 million for the third quarter
2006, compared to a EUR 0.7 million loss in the previous quarter.
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 EUR 2.5 million, compared to EUR 3.3
million the previous quarter.
Balance sheet: Wavecom's cash position grew to EUR 48.4 million at
September 30, 2006, increasing from EUR 37.2 million on June 30, 2006.
This increase was due to a better working capital management,
specifically a reduction in accounts receivables. Following our
acquisition of the Sony Ericsson M2M business, an additional payment
of EUR 7.5 million should be made no later than December 31, 2006 once
contractual conditions are met.
Inventories of both finished products and components as of
September 30, 2006, stood at EUR 11.2 million, compared to EUR 6.7
million at the end of the previous quarter. Inventories increased due
mainly to two reasons: First, as announced previously, we began
reporting on our books a portion of components and finished goods held
by one contract manufacturer of the acquired business in the third
quarter 2006, as we have done for our historical business. Secondly,
the consolidation of our production activities has resulted in an
increase in inventory, for a transitional period, with our established
outsource manufacturer.
Business news:
-- Navman selected Wavecom wireless technology for an innovative
monitored-vehicle security solution that is soon to be
released into the New Zealand market. Silent-i, an initiative
between Telecom (New Zealand), Navman and ADT, is a
monitored-vehicle security product and service. The full offer
combines a five-star car alarm, GPS geo-locator, CDMA wireless
connectivity and 24/7 security backup.
-- Expansion of Wavecom-sponsored web-based forum, now called the
Wavecom Developer Forum expanded to include discussions on
Wavecom's hardware family of Wireless CPUs (Central Processing
Units). Launched in October of 2005, the Forum welcomed its
1500(th) member in September. This very active forum
demonstrates that the Open AT(R) Software Suite is becoming
the de facto standard for the development of natively executed
embedded C applications in the industrial wireless space.
-- A.P. Systems, a leading Italian subsystem designer for the
meter market announced it has selected a Wavecom wireless
solution for its newest line of advanced communications
subsystems for automatic electricity meters. These types of
products will help energy providers as they prepare to operate
in deregulated energy distribution.
-- Wavecom signed a licensing contract for its software and
silicon technology for a license fee of USD5 million. This
transaction, including full payment, is pending execution of
certain contractual obligations which are expected to be
completed in the fourth quarter 2006.
Further commenting on the state of the business, Ron Black,
Wavecom CEO added, "We are very encouraged by the our financial
performance in the third quarter 2006 and are extremely pleased to
announce the conclusion of a new software licensing agreement. This
transaction moves us further along our strategic axis and demonstrates
the value of Wavecom's technology in the marketplace."
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 2006. To access this call, please use
the following numbers: +33 (0) 70 99 42 86 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 Q4 2006 results on February 8, 2007 at
7:00 a.m. Paris time.
About Wavecom
Wavecom is a worldwide leader in embedded industrial wireless
communication solutions for automotive, machine-to-machine and mobile
professional applications. Wavecom's solutions include the Open AT(R)
software platform encompassing the Wavecom Open AT(R) Operating
System, a wide range of Plug-Ins, the Open AT(R) Integrated
Development Environment (IDE) along with a market-leading range of
Wireless CPUs (Central Processing Units), and an expanding portfolio
of services. These complete embedded solutions enable makers of all
types of machines to develop a new breed of intelligent wireless
applications, without the need of external processors and other ASICs
(Application Specific Integrated Circuits) and components.
Founded in 1993 and headquartered in Paris, Wavecom has
subsidiaries in Hong Kong (PRC), Research Triangle Park, NC (USA), San
Diego, CA (USA) and Camberley (UK). Wavecom is publicly traded on
Euronext Paris (Eurolist) in France and on the NASDAQ (WVCM) exchange
in the U.S.
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.
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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 June 30, September
30, 30,
2005 2006 2006
-----------------------------------
Euro Euro Euro
Revenues :
Product sales 31,289 49,187 54,992
Services revenue 614 216 408
Licensing revenue 484 484 485
----------- ----------- -----------
32,387 49,887 55,885
Cost of revenues :
Cost of goods sold 16,442 28,762 35,206
Cost of services 220 697 802
----------- ----------- -----------
16,662 29,459 36,008
----------- ----------- -----------
Gross profit 15,725 20,428 19,877
Operating expenses :
Research and development 5,646 7,901 8,140
Sales and marketing 2,757 3,848 3,628
General and administrative 4,463 5,847 6,287
Acquired in process technology - 1,400 -
Amortization of acquired
intangible assets - 775 1,163
Restructuring costs 233 - 38
----------- ----------- -----------
Total operating expenses 13,099 19,771 19,256
----------- ----------- -----------
Operating income 2,626 657 621
----------- ----------- -----------
Interest income and other
financial income, net 271 176 264
Foreign exchange gain (loss), net 441 (647) 354
----------- ----------- -----------
Total other income (loss) 712 (471) 618
----------- ----------- -----------
Gain before income taxes 3,338 186 1,239
Income tax expense 8 19 20
----------- ----------- -----------
Net income 3,330 167 1,219
=========== =========== ===========
Basic net income per share 0.22 0.01 0.08
=========== =========== ===========
Diluted net income per share 0.21 0.01 0.08
=========== =========== ===========
Number of shares used for
computing :
- basic 15,349,945 15,384,077 15,385,077
- diluted 15,774,128 15,790,902 15,750,160
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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,
2005 2006
----------- -----------
Euro Euro
Revenues :
Product sales 96,463 131,640
Services revenue 1,144 895
Licensing revenue 968 1,453
----------- -----------
98,575 133,988
Cost of revenues :
Cost of goods sold 53,530 77,034
Cost of services 613 1,675
----------- -----------
54,143 78,709
----------- -----------
Gross profit 44,432 55,279
Operating expenses :
Research and development 17,549 21,944
Sales and marketing 8,715 10,362
General and administrative 13,491 17,701
Acquired in process technology - 1,400
Amortization of acquired intangible assets - 1,938
Restructuring costs 1,607 38
----------- -----------
Total operating expenses 41,362 53,383
----------- -----------
Operating income 3,070 1,896
----------- -----------
Interest income and other financial income,
net 761 762
Foreign exchange gain (loss), net 3,869 (975)
----------- -----------
Total financial income (loss) 4,630 (213)
----------- -----------
Gain before minority interests and income
taxes 7,700 1,683
Minority interests - -
----------- -----------
Gain before income taxes 7,700 1,683
Income tax expense 408 92
----------- -----------
Net income 7,292 1,591
=========== ===========
Basic net income per share 0.48 0.10
=========== ===========
Diluted net income per share 0.47 0.10
=========== ===========
Number of shares used for computing :
- basic 15,349,945 15,381,572
- diluted 15,571,751 15,770,654
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WAVECOM S.A.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share data)
Prepared in accordance with U.S. generally accepted accounting
principles.
At At
December Sept
31, 30,
2005 2006
--------- --------
Euro Euro
ASSETS
Current assets :
Cash and cash equivalents 60,663 48,425
Accounts receivable, net 24,271 33,549
Inventory, net 6,448 11,178
Value added tax recoverable 842 568
Prepaid expenses and other current assets 2,741 5,549
--------- --------
Total current assets 94,965 99,269
Other assets :
Long-term investments 3,585 3,608
Other assets 4,146 3,420
Research tax credit 1,529 1,630
Deferred tax assets 9,617 9,617
Intangible and tangible assets, net 6,236 7,791
Acquired intangible assets, net - 11,846
Goodwill - 10,828
--------- --------
Total assets 120,078 148,009
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities :
Accounts payable 24,314 41,060
Accrued compensation 6,732 8,035
Current portion of other accrued expenses 3,831 9,212
Current portion of capitalized lease obligations 303 260
Deferred revenue and advances received from
customers 2,564 1,383
Other liabilities 225 8,225
--------- --------
Total current liabilities 37,969 68,175
Long-term liabilities :
Long-term portion of other accrued expenses 16,775 11,005
Long-term portion of capitalized lease
obligations 94 332
Other long-term liabilities 1,100 918
--------- --------
Total long-term liabilities 17,969 12,255
Shareholders' equity :
Shares, euro 1 nominal value, 15,544,317 shares
authorized, issued and outstanding at September 30,
2006 (15,531,813 at December 31, 2005) 15,532 15,544
Additional paid-in capital 137,180 137,248
Treasury stock at cost (156,345 shares at September
30, 2006 and December 31, 2005) (1,312) (1,312)
Retained deficit (84,650) (83,060)
Accumulated other comprehensive loss (2,610) (841)
--------- --------
Total shareholders' equity 64,140 67,579
--------- --------
Total liabilities and shareholders' equity 120,078 148,009
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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,
2005 2006
-------- --------
Euro Euro
Cash flows from operating activities :
Net income 7,292 1,591
Adjustments to reconcile net income to net cash
provided from
operating activities:
Amortization and impairment of tangible assets 5,430 5,027
Share-based compensation - 1,414
Loss on sales and retirement of tangible assets 821 6
Net increase (decrease) in cash from working
capital items (11,343) 8,975
-------- --------
Net cash provided by operating activities 2,200 17,013
-------- --------
Cash flows from investing activities :
Disposal (acquisition) of long term investments 5,451 (22)
Purchases of intangible and tangible assets (1,429) (4,372)
Acquisition of certain assets, net of cash
acquired - (24,628)
Proceeds from sale of intangible and tangible
assets 851 155
-------- --------
Net cash provided (used) by investing
activities 4,873 (28,867)
-------- --------
Cash flows from financing activities :
Principal payments on capital lease obligations (363) (278)
Proceeds from exercise of stock options and
founders' warrants 24 80
-------- --------
Net cash used in financing activities (339) (198)
Effect of exchange rate changes on cash and cash
equivalents (40) (186)
-------- --------
Net increase (decrease) in cash and cash equivalents 6,694 (12,238)
Cash and cash equivalents, beginning of period 53,318 60,663
-------- --------
Cash and cash equivalents, end of period 60,012 48,425
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WAVECOM S.A.
NET INCOME COMPARISON BEFORE AND AFTER STOCK-BASED COMPENSATION
(in thousands, except share information)
Three months ended
September June 30, September
30, 30,
2005 2006 2006
(In thousands, except per share
data)
-----------------------------------
Euro Euro Euro
Net income 3,330 167 1,219
=========== =========== ===========
Net income per share
Basic 0.22 0.01 0.08
Diluted 0.21 0.01 0.08
Number of shares used for
computing :
Basic 15,349,945 15,384,077 15,385,077
Diluted 15,774,128 15,790,902 15,750,160
Stock-based compensation
Research and development 39 109
Sales and marketing 81 194
General and administrative 279 448
----------- ----------- -----------
Stock-based compensation total - 399 751
=========== =========== ===========
Net income before stock-based
compensation 3,330 566 1,970
=========== =========== ===========
Net income before stock-based
compensation per share
Basic 0.22 0.04 0.13
Diluted 0.21 0.04 0.13
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