DragonWave Inc.
TSX : DWI
NASDAQ : DRWI

DragonWave Inc.

October 05, 2011 16:33 ET

DragonWave Inc. Announces Second Quarter Fiscal Year 2012 Results

OTTAWA, CANADA--(Marketwire - Oct. 5, 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 its second quarter of fiscal year 2012, ended August 31, 2011. All figures are reported in U.S. dollars and were prepared in accordance with U.S. generally accepted accounting principles.

Revenue for the second quarter of fiscal year 2012 was $13.6 million, compared with $27.2 million in the second quarter of fiscal year 2011 and $11.0 million in the first quarter of fiscal year 2012. Revenue from customers within North America was $11.8 million, compared with $20.3 million in the second quarter of the prior fiscal year. DragonWave had two customers who generated more than 10% of revenue in the second quarter of fiscal year 2012.

Gross margin for the second quarter of fiscal year 2012 was 42%, compared with 44% in the second quarter of fiscal year 2011. Before amortization of intangible assets and other items, the loss in the second quarter of fiscal year 2012 was $7.6 million, compared with income of $1.2 million in the second quarter of fiscal year 2011. Net and comprehensive loss applicable to shareholders in the second quarter was $2.2 million or ($0.06) per diluted share, compared with income of $1.2 million or $0.03 per diluted share in the second quarter of the prior fiscal year. The results reflect a reduction in the expected earn-out payment associated with the Axerra acquisition which, when combined with the reduction of the related intangibles, generated a net one-time gain of $6.2 million or $0.17 per diluted share at the net and comprehensive loss level.

"We continue to make progress on a number of promising opportunities with major mobile operators globally and we remain positive about our prospects," said DragonWave President and CEO Peter Allen.

Cash, cash equivalents, restricted cash, and short-term investments totaled $71.6 million, compared to $79.9 million at the end of the first quarter of fiscal year 2012, and $89.7 million at the end of the fourth quarter of fiscal year 2011.

Revenue Outlook for Q3 FY2012

DragonWave expects revenue for the third quarter of fiscal year 2012 to be in the range of $12 million to $15 million.

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 6, 2011.

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 of the revenue range for the third quarter of fiscal year 2012 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: the network deployment plans of its existing and new customers, and the volume and timing of orders, shipments and revenue recognition. 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 4, 2011 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 BALANCE SHEETS
Expressed in US $000's except share and per share amounts
(unaudited)
As at As at
August 31, February 28,
2011 2011
Assets
Current Assets
Cash and cash equivalents 62,182 77,819
Restricted cash 219 714
Short term investments 9,194 11,181
Trade receivables 10,614 11,579
Inventory 31,532 28,204
Other current assets 5,226 5,306
Deferred income tax asset 524 553
119,491 135,356
Long Term Assets
Property and equipment 6,555 7,560
Deferred income tax asset 2,167 808
Intangible assets 5,808 14,929
Goodwill 11,927 11,927
26,457 35,224
Total Assets 145,948 170,580
Liabilities
Current Liabilities
Accounts payable and accrued liabilities 15,034 15,967
Deferred revenue 1,541 1,453
Contingent royalty 301 622
Contingent consideration 3,773 14,622
20,649 32,664
Long Term Liabilities
Contingent royalty 1,449 3,290
Other long term liabilities 1,491 1,999
2,940 5,289
Commitments
Shareholders' equity
Capital stock 172,037 171,570
Contributed surplus 3,593 2,642
Deficit (44,063 ) (31,967 )
Accumulated other comprehensive loss (AOCL) (9,636 ) (9,618 )
Total shareholder's equity 121,931 132,627
Non-controlling interests 428 -
Total Equity 122,359 132,627
Total Liabilities and Equity 145,948 170,580
Shares issued & outstanding 35,530,757 35,421,893
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Expressed in US $000's except share and per share amounts
(unaudited)
Three months ended Six months ended
August 31 August 31
2011 2010 2011 2010
REVENUE13,627 27,171 24,676 75,897
Cost of sales7,852 15,219 14,257 42,714
Gross profit5,775 11,952 10,419 33,183
EXPENSES
Research and development6,365 3,668 12,962 8,299
Selling and marketing3,849 4,460 7,929 8,589
General and administrative3,457 2,585 7,089 5,145
Government assistance(287)- (637)-
13,384 10,713 27,343 22,033
Income (loss) before amortization of intangible assets and other items(7,609)1,239 (16,924)11,150
Amortization of intangible assets(622)(87)(1,209)(169)
Accretion expense(276)- (552)-
Interest income127 76 211 108
Investment gain (loss)(19)62 20 13
Impairment of intangible assets(8,315)- (8,315)-
Gain on change in estimate of contingent liabilities13,161 - 13,161 -
Foreign exchange gain(36)69 84 186
Income (loss) before income taxes(3,589)1,359 (13,524)11,288
Income tax expense (recovery)(1,310)126 (1,301)357
Net Income (loss)(2,279)1,233 (12,223)10,931
Net Loss Attributable to Non-Controlling Interest73 127
Net Income (Loss) applicable to shareholders(2,206)1,233 (12,096)10,931
Foreign currency translation differences for foreign operations13 18
Net and Comprehensive Income (Loss) applicable to shareholders(2,219)1,233 (12,114)10,931
Income (loss) per share
Basic(0.06)0.03 (0.34)0.30
Diluted(0.06)0.03 (0.34)0.30
Weighted Average Shares Outstanding
Basic35,494,976 35,978,213 35,462,012 36,447,553
Diluted35,494,976 36,690,926 35,462,012 37,345,767
CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed in US $000's
(unaudited)
Three months ended Six months ended
August 31 August 31
2011 2010 2011 2010
Operating Activities
Net Income (Loss) (2,279 ) 1,233 (12,223 ) 10,931
Items not affecting cash
Amortization of property and equipment 845 709 1,674 1,340
Amortization of intangible assets 622 87 1,209 169
Accretion expense 276 552
Non cash royalty amortization (201 ) (402 )
Impairment of intangible asstes 8,315 8,315
Gain on change in estimate of contingent liabilities (13,161 ) (13,161 )
Stock-based compensation 582 328 1,074 615
Unrealized foreign exchange loss 72 174 73 190
Non cash future income tax recovery (1,310 ) (1,301 )
Inventory impairment 104 707 161 650
Unrealized gain on short term investments (25 ) (65 ) (64 ) (16 )
Accrued interest on short term investments (1 ) (33 ) (2 ) (40 )
(6,161 ) 3,140 (14,095 ) 13,839
Changes in non-cash working capital items (2,046 ) (10,290 ) (3,330 ) (15,324 )
(8,207 ) (7,150 ) (17,425 ) (1,485 )
Investing Activities
Acquisition of property and equipment (220 ) (656 ) (669 ) (2,806 )
Acquisition of intangible assets (89 ) (261 ) (403 ) (336 )
Purchase of short term investments (69,917 ) (22,432 ) (115,225 )
Maturity of short term investments 6,977 60,725 24,485 68,799
6,668 (10,109 ) 981 (49,568 )
Financing Activities
Share repurchase (9,269 ) (10,323 )
Equity contribution by non-controlling interest in DW-HFCL 555
Issuance of common shares net of issuance costs 166 64 344 211
166 (9,205 ) 899 (10,112 )
Effect of foreign exchange on cash and cash equivalents (86 ) (174 ) (92 ) (190 )
Net decrease in cash and cash equivalents (1,459 ) (26,638 ) (15,637 ) (61,355 )
Cash and cash equivalents at beginning of period 63,641 70,559 77,819 105,276
Cash and cash equivalents at end of period 62,182 43,921 62,182 43,921
Cash paid during the period for interest - - - -

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