DragonWave Inc.
TSX : DWI
NASDAQ : DRWI

DragonWave Inc.

January 12, 2011 17:01 ET

DragonWave Announces Financial Results for Third Quarter Fiscal Year 2011

OTTAWA, CANADA--(Marketwire - Jan. 12, 2011) - DragonWave Inc. (TSX:DWI) (NASDAQ:DRWI) a leading global supplier of packet microwave radio systems for mobile and access networks, today announced financial results for the third quarter of fiscal year 2011, ended November 30, 2010. All figures are in U.S. dollars and in accordance with Canadian generally accepted accounting principles.

Revenue for the third quarter of fiscal year 2011 was $27.0 million, compared with $27.2 million in the second quarter of fiscal year 2011 and $51.6 in the third quarter of fiscal year 2010. Revenue from customers within North America was $22.8 million, compared with $20.3 million in the second quarter and $48.7 million in the third quarter of the prior fiscal year. Revenue from customers outside North America was $4.2 million, compared with $6.9 million in the second quarter of this fiscal year and $2.9 million in the third quarter of the prior fiscal year. DragonWave had two customers who each contributed more than 10% of revenue in the third quarter.

Net loss in the third quarter of fiscal year 2011 was $0.05 million, which equated to $0.00 per diluted share, compared with net income of $1.2 million or $0.03 per diluted share in the second quarter of this fiscal year and $11.6 million or $0.34 in the third quarter of the prior fiscal year. Gross margin for the third quarter increased to 48%, from 44% in the second quarter of this fiscal year and 43% in the third quarter of the prior fiscal year.

"We made progress this quarter in our global diversification strategy, particularly with the acquisition of Axerra Networks and the announcement of our joint venture in India," said DragonWave President and CEO Peter Allen. "Our leading-edge technology positions us well for important upcoming network builds supporting the growing demand for mobile broadband services; however, the visibility into these opportunities with both new and existing customers remains very limited at this time."

Third Quarter Fiscal Year 2011 Performance Summary

  • Revenue: $27.0 million, versus $27.2 Q2 FY2011 and $51.6 in Q3 FY2010

  • Gross margin: 48%, versus 44% in Q2 FY2011 and 43% in Q3 FY2010

  • Net loss: $0.05 million, versus net income of $ 1.2 million in Q2 FY2011 and $11.6 in Q3 FY2010

  • Diluted EPS: $0.00, versus $0.03 in Q2 FY2011 and $0.34 in Q3 FY2010

  • Total cash generated from operations: $6.2 million

  • DSO performance: 62 days, based on ending balance

  • Ending cash, cash equivalents, restricted cash and short-term investments: $95.4 million

  • Shipped product to 31 new customers in Q3 FY2011, bringing year-to-date total to 64 new customers. This included eight customers from the acquisition of Axerra.

Revenue for the first nine months of fiscal year 2011 was $102.9 million, compared to $97.0 million for the same period of the prior fiscal year. Net income for the first nine months of fiscal 2011 was $10.7 million or $0.29 per diluted share, compared to $15.0 million or $0.48 per diluted share for the first nine months of the prior fiscal year.

Revenue Outlook for Fourth Quarter Fiscal Year 2011

DragonWave expects revenue of approximately $15 million for the fourth quarter of fiscal year 2011.

Webcast and Conference Call Details:

The DragonWave management team will discuss the results on a webcast and conference call beginning at 8:30 a.m. Eastern Time tomorrow, January 13, 2011. 

The live webcast and presentation slides will be available at the Investor Relations section of the DragonWave website at: http://investor.dragonwaveinc.com/events.cfm

An archive of the webcast will be available at the same link.

Conference call dial-in numbers:

  • Toll-free North America: (877) 312-9202
  • International: (408) 774-4000

About DragonWave

DragonWave® is a leading provider of high-capacity packet microwave solutions that drive next-generation IP networks. DragonWave's carrier-grade point-to-point packet microwave systems transmit broadband voice, video and data, enabling service providers, government agencies, enterprises and other organizations to meet their increasing bandwidth requirements rapidly and affordably. The principal application of DragonWave's products is wireless network backhaul. Additional solutions include leased line replacement, last mile fiber extension and enterprise networks. DragonWave's corporate headquarters is located in Ottawa, Ontario, with sales locations in Europe, Asia, the Middle East and North America. For more information, visit http://www.dragonwaveinc.com.

Forward-Looking Statements

Certain statements in this release, including the estimate of revenue for the fourth quarter of fiscal year 2011 provided above, constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws. These statements are subject to certain assumptions, risks and uncertainties. Material factors and assumptions used to develop such estimates include:

  • DragonWave's expectations regarding network deployment plans of its existing and new customers; and

  • DragonWave's expectations regarding the volume and timing of anticipated order activity.

Readers are cautioned not to place undue reliance on such statements. These statements are provided to assist external stakeholders in understanding DragonWave's expectations as of the date of this release and may not be appropriate for other purposes.

Actual results, performance, achievements or developments of DragonWave may differ materially from the results, performance, achievements or developments expressed or implied by such statements. Risk factors that may cause the actual results, performance, achievements or developments of DragonWave to differ materially from the results, performance, achievements or developments expressed or implied by such statements can be found in DragonWave's Annual Information Form dated May 6, 2010 and other public documents filed by DragonWave with Canadian and United States securities regulatory authorities, which are available at www.sedar.com and www.sec.gov, respectively, and include the following:

  • DragonWave relies on a small number of customers for a large percentage of its revenue and DragonWave's future growth depends on the success of its customer diversification efforts.

  • DragonWave's growth is dependent on the development and growth of the market for high-capacity wireless communications services.

  • Network deployment plans by DragonWave's existing and potential customers are capital intensive and the timing of such deployments is affected by such customers' access to capital.

  • DragonWave faces intense competition from several competitors and if it does not compete effectively with these competitors, its revenues may not grow and could decline. DragonWave also faces competition from indirect competitors.

  • DragonWave relies on its suppliers to supply components for its products and the Company is exposed to the risk that these suppliers will not be able to supply components on a timely basis, or at all.

  • DragonWave may conduct acquisitions of products and businesses. There are risks associated with such acquisitions.

  • DragonWave's success depends on its ability to develop new products and enhance existing products.

  • If DragonWave is required to change its pricing models to compete successfully, its margins and operating results may be adversely affected.

  • DragonWave's quarterly revenue and operating results can be difficult to predict and can fluctuate substantially.

  • DragonWave has a lengthy and variable sales cycle.

DragonWave assumes no obligation to update or revise any forward-looking statements or forward-looking information, whether because of new information, future events or otherwise, except as expressly required by law.

CONSOLIDATED STATEMENTS OF OPERATIONS  
AND COMPREHENSIVE INCOME (LOSS)  
Expressed in US $000's except share and per share amounts  
(unaudited)  
                 
  Three months ended   Nine months ended  
  November 30   November 30  
  2010   2009   2010   2009  
                 
                 
REVENUE 27,008   51,594   102,905   97,016  
  Cost of sales 14,049   29,453   56,763   56,757  
Gross profit 12,959   22,141   46,142   40,259  
                 
EXPENSES                
  Research and development 4,817   4,139   13,104   9,743  
  Selling and marketing 4,735   4,118   13,339   9,444  
  General and administrative 3,294   2,084   8,477   4,748  
  Government assistance (246 ) (55 ) (246 ) (159 )
  12,600   10,286   34,674   23,776  
Income from operations 359   11,855   11,468   16,483  
                 
  Amortization of intangible assets (277 ) (48 ) (421 ) (145 )
  Accretion expense (122 )   (122 )  
  Interest income 88   12   196   29  
  Investment gain 155     168    
  Gain on sale of property and equipment -   226   -   258  
  Foreign exchange gain (loss) (44 ) (135 ) 142   (1,445 )
Income before income taxes 159   11,910   11,431   15,180  
                 
  Income tax expense 209   263   566   138  
Net and Comprehensive Income (Loss) (50 ) 11,647   10,865   15,042  
                 
                 
Income (loss) per share                
  Basic (0.00 ) 0.36   0.30   0.50  
  Diluted (0.00 ) 0.34   0.29   0.48  
                 
Weighted Average Shares Outstanding                
  Basic 35,125,724   32,604,077   36,010,148   29,911,913  
  Diluted 36,170,040   34,085,934   36,957,219   31,229,492  
                 
                 
                 
CONSOLIDATED BALANCE SHEETS  
Expressed in US $000's  
(unaudited)  
         
  As at   As at  
  November 30,   February 28,  
  2010   2010  
Assets        
Current Assets        
  Cash and cash equivalents 47,879   105,276  
  Restricted cash 387   -  
  Short term investments 47,099   8,074  
  Trade receivables 15,024   28,926  
  Other receivables 2,513   1,801  
  Inventory 26,950   23,910  
  Prepaid expenses 2,124   721  
  Future income tax asset 543   436  
  142,519   169,144  
Long Term Assets        
  Property and equipment 8,030   7,116  
  Future income tax asset 1,033   59  
  Intangible assets 15,044   430  
  Goodwill 11,927   -  
  36,034   7,605  
         
Total Assets 178,553   176,749  
         
Liabilities        
Current Liabilities        
  Accounts payable and accrued liabilities 16,287   33,949  
  Income taxes payable 212   835  
  Deferred revenue 1,353   1,017  
  Contingent royalty 789   -  
  18,641   35,801  
         
Long Term Liabilities        
  Contingent consideration 14,391   -  
  Contingent royalty 3,223   -  
  Other long term liabilities 2,002   2,102  
  19,616   2,102  
         
Commitments        
         
Shareholders' equity        
  Capital stock 170,513   179,174  
  Contributed surplus 2,324   1,375  
  Deficit (22,923 ) (32,085 )
  Accumulated other comprehensive loss (9,618 ) (9,618 )
  140,296   138,846  
         
Total Liabilities and Shareholders' Equity 178,553   176,749  
         
         
Shares issued & outstanding 35,146,435   36,934,917  
         
         
         
CONSOLIDATED STATEMENTS OF CASH FLOWS  
Expressed in US $000's  
(unaudited)  
                 
  Three months ended   Nine months ended  
  November 30   November 30  
  2010   2009   2010   2009  
                 
Operating Activities                
Net Income (50 ) 11,647   10,865   15,042  
Items not affecting cash              
    Amortization of property and equipment 761   366   2,126   825  
    Amortization of intangible assets 277   48   421   145  
    Accretion expense 122     122    
    Stock-based compensation 339   213   970   686  
    Unrealized foreign exchange loss 100   (617 ) 290   552  
    Gain on sale of property and equipment   (226 )   (258 )
    Non cash future income tax expense 92     92    
    Benefit on recognition of future income tax asset   72     (244 )
    Inventory impairment 538   335   1,188   655  
    Unrealized gain on short term investments 74     58    
    Accrued interest on short term investments (46 )   (86 )  
  2,207   11,838   16,046   17,403  
                 
Changes in non-cash working capital items 3,997   791   (11,327 ) (852 )
  6,204   12,629   4,719   16,551  
                 
Investing Activities                
  Acquisition of property and equipment (402 ) (2,242 ) (3,208 ) (3,792 )
  Acquisition of intangible assets (200 ) (187 ) (536 ) (487 )
  Acquistion of Axerra Networks Inc., net of cash acquired (8,700 )   (8,700 )  
  Purchase of short term investments     (115,225 )  
  Maturirty of short term investments 7,429   (12,750 ) 76,228   (950 )
  (1,873 ) (15,179 ) (51,441 ) (5,229 )
                 
Financing Activities                
  Change in line of credit   (543 )   (512 )
  Share repurchase (415 )   (10,738 )  
  Issuance of common shares net of issuance costs 142   68,615   353   68,656  
  (273 ) 68,072   (10,385 ) 68,144  
                 
Effect of foreign exchange on cash and cash equivalents (100 ) 617   (290 ) (552 )
                 
Net increase (decrease) in cash and cash equivalents 3,958   66,139   (57,397 ) 78,914  
                 
Cash and cash equivalents at beginning of period 43,921   19,468   105,276   6,693  
                 
Cash and cash equivalents at end of period 47,879   85,607   47,879   85,607  
                 
Cash paid during the period for interest 194   6   194   25  
                 
                 

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