DragonWave Inc.
TSX : DWI
NASDAQ : DRWI

DragonWave Inc.

October 07, 2010 16:01 ET

DragonWave Inc. Announces Second Quarter Fiscal Year 2011 Results

OTTAWA, ONTARIO--(Marketwire - Oct. 7, 2010) - 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 second quarter fiscal year 2011, ended August 31, 2010. All figures are reported in U.S. dollars and were prepared in accordance with Canadian generally accepted accounting principles.

Revenue for the second quarter of fiscal year 2011 was $27.2 million, compared with $32.4 million in the second quarter of fiscal year 2010. Revenue from customers within North America was $20.3 million, compared with $29.1 million in the second quarter of the prior fiscal year. Revenue from customers outside North America was $6.9 million, compared with $3.3 million in the second quarter of the prior fiscal year. DragonWave had two customers that each contributed more than 10% of revenue in the second quarter of fiscal year 2011.

Net income in the second quarter of fiscal year 2011 was $1.2 million or $0.03 per diluted share, compared with net income of $5.7 million or $0.19 per diluted share in the second quarter of fiscal year 2010. Gross margin for the second quarter was 44%, compared with 42% in the second quarter of the prior fiscal year; operating margin was 4% in the quarter, compared with 17% in the second quarter of the prior fiscal year.

"I am satisfied with our progress in the second quarter in meeting key objectives to strengthen our global market presence, expand our customer and partner base, and to continue to deliver innovative solutions," said DragonWave President and CEO Peter Allen. "The industry-leading Horizon Quantum shipped commercially and contributed to revenue for the first time in the quarter. In addition, we generated revenue from our OEM partnership for the first time this quarter, and we are close to adding another OEM partner. The global demand for mobile broadband Internet services continues to expand – we are still in the early stages of the growth potential for DragonWave mobile backhaul solutions in markets throughout the world."

Revenue for the first six months of fiscal year 2011 was $75.9 million, an increase of 67% compared with $45.4 million for the first six months of the prior fiscal year. Net income for the first six months of fiscal year 2011 was $10.9 million or $0.29 per diluted share, compared with net income of $3.4 million or $0.12 per diluted share for the first half of fiscal year 2010.

Cash, cash equivalents, and short-term investments totaled $98.5 million at the end of the second quarter of fiscal year 2011, compared to $115.8 million at the end of the prior quarter, and $19.5 million at the end of the second quarter of fiscal year 2010. The Company used $9.3 million of cash in support of the share repurchase program.

Revenue Outlook for Q3 FY2011

The Company expects revenue for the third quarter of fiscal year 2011 to be approximately $30 million.

DragonWave began reporting financial results in US dollars in the first quarter of fiscal year 2011. For comparative purposes, all 2010 figures have been translated to US dollars.

Webcast and Conference Call Details

The DragonWave management team will discuss the results on a conference call and webcast beginning at 8:30 a.m. Eastern Time, tomorrow, October 8, 2010.

Toll-free North America Dial-in: 877-312-9202

International Dial-in: 408-774-4000

The live webcast and presentation slides will be available at:
http://investor.dragonwaveinc.com/events.cfm

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

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.

DragonWave® is a registered trademark of DragonWave Inc.

Forward-Looking Statements

Certain statements in this release, including the estimate and sources of revenue for the third 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.

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

  • 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 BALANCE SHEETS
Expressed in US $000's
(unaudited)
  As at   As at  
  August 31,   February 28,  
  2010   2010  
Assets        
Current Assets        
  Cash and cash equivalents 43,921   105,276  
  Short term investments 54,556   8,074  
  Trade receivables 20,654   28,926  
  Other receivables 931   1,801  
  Inventory 27,508   23,910  
  Prepaid expenses 1,819   721  
  Future income tax asset 338   436  
  149,727   169,144  
Long Term Assets        
  Property, equipment and intangible assets 8,505   7,546  
  Future income tax asset 106   59  
  8,611   7,605  
         
Total Assets 158,338   176,749  
         
Liabilities        
Current Liabilities        
  Accounts payable and accrued liabilities 13,245   33,949  
  Income taxes payable 93   835  
  Deferred revenue 2,662   1,017  
  16,000   35,801  
         
Long Term Liabilities 2,473   2,102  
         
Commitments        
         
Shareholders' equity        
  Capital stock 170,364   179,174  
  Contributed surplus 1,992   1,375  
  Deficit (22,873 ) (32,085 )
  Accumulated other comprehensive income (9,618 ) (9,618 )
  139,865   138,846  
         
Total Liabilities and Shareholders' Equity 158,338   176,749  
         
Shares issued & outstanding 35,112,860   36,934,917  
         
         
         
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Expressed in US $000's except share and per share amounts
(unaudited)
  Three months ended   Six months ended  
  August 31   August 31  
  2010 2009   2010 2009  
             
REVENUE 27,171 32,423   75,897 45,422  
  Cost of sales 15,219 18,795   42,714 27,304  
  Gross profit 11,952 13,628   33,183 18,118  
             
EXPENSES            
  Research and development 3,733 3,236   8,431 5,701  
  Selling and marketing 4,468 3,257   8,604 5,326  
  General and administrative 2,607 1,661   5,183 2,664  
  Investment tax credits (55 ) - (104 )
  10,808 8,099   22,218 13,587  
Income from operations 1,144 5,529   10,965 4,531  
             
  Interest income/(expense) 76 (5 ) 108 17  
  Investment gain 62   13  
  Gain on sale of property, equipment and intangible assets 32   32  
  Foreign exchange gain (loss) 69 64   186 (1,310 )
Income before income taxes 1,351 5,620   11,272 3,270  
             
  Income tax expense (recovery) 126 (125 ) 357 (125 )
Net and Comprehensive Income 1,225 5,745   10,915 3,395  
             
             
Income per share            
  Basic 0.03 0.20   0.30 0.12  
  Diluted 0.03 0.19   0.29 0.12  
             
Weighted Average Shares Outstanding            
  Basic 35,978,213 28,620,162   36,447,553 28,594,700  
  Diluted 36,690,926 29,675,696   37,345,767 29,281,050  
             
             
             
CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed in US $000's
(unaudited)
  Three months ended   Six months ended  
  August 31   August 31  
  2010   2009   2010   2009  
Operating Activities                
  Net Income 1,225   5,745   10,915   3,395  
  Items not affecting cash                
  Depreciation 796   308   1,509   556  
  Stock-based compensation 336   276   631   473  
  Unrealized foreign exchange loss 174   328   190   1,169  
  Gain on sale of property, equipment and intangible assets   (32 )   (32 )
  Benefit on recognition of future income tax asset   (316 )   (316 )
  Inventory impairment 707   300   650   320  
  Unrealized gain on short term investments (65 )   (16 )  
  Accrued interest on short term investments (33 )   (40 )  
  3,140   6,609   13,839   5,565  
                 
Changes in non-cash working capital items (10,290 ) (5,526 ) (15,324 ) (1,643 )
  (7,150 ) 1,083   (1,485 ) 3,922  
                 
Investing Activities                
  Acquisition of property, equipment and intangible assets (917 ) (1,368 ) (3,142 ) (1,850 )
  Purchase of short term investments (69,917 )   (115,225 )  
  Maturirty of short term investments 60,725     68,799   11,800  
  (10,109 ) (1,368 ) (49,568 ) 9,950  
                 
Financing Activities                
  Change in line of credit   1     31  
  Share repurchase (9,269 )   (10,323 )  
  Issuance of common shares net of issuance costs 64   32   211   41  
  (9,205 ) 33   (10,112 ) 72  
                 
Effect of foreign exchange on cash and cash equivalents (174 ) (328 ) (190 ) (1,169 )
                 
Net increase (decrease) in cash and cash equivalents (26,638 ) (580 ) (61,355 ) 12,775  
                 
Cash and cash equivalents at beginning of period 70,559   20,048   105,276   6,693  
                 
Cash and cash equivalents at end of period 43,921   19,468   43,921   19,468  
                 
Cash paid during the period for interest -   13   -   19  

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