DragonWave Inc.
TSX : DWI
NASDAQ : DRWI

DragonWave Inc.

October 10, 2012 16:41 ET

DragonWave Inc. Reports Second Quarter Fiscal Year 2013 Results

OTTAWA, CANADA--(Marketwire - Oct. 10, 2012) - DragonWave Inc. (TSX:DWI)(NASDAQ:DRWI) a leading global supplier of packet microwave radio systems for mobile and access networks, today reported financial results for its second quarter of fiscal year 2013, ended August 31, 2012. All figures are reported in U.S. dollars and were prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Revenue for the second quarter of fiscal year 2013 was $44.2 million, compared with $13.6 million in the second quarter of fiscal year 2012 and $13.0 million in the first quarter of fiscal year 2013. DragonWave had one customer, Nokia Siemens Networks, who generated more than 10% of revenue in the second quarter of fiscal year 2012. Revenue through the Nokia Siemens Networks channel totaled $32.3 million in the quarter.

Gross margin for the second quarter of fiscal year 2013 was 15%, compared with 42% in the second quarter of fiscal year 2012 and 32% in the first quarter of fiscal year 2013. The gross margin in the second quarter of fiscal year 2013 reflects the inclusion of an inventory impairment provision of $2.6 million. Without the inventory provision, the gross margin in the second quarter was 21%.

Comprehensive loss applicable to shareholders in the second quarter of fiscal year 2013 was ($1.1) million or ($0.03) per basic and diluted share, compared to a loss of ($2.2) million or ($0.06) per basic and diluted share in the second quarter of fiscal year 2012. These results include a one-time gain of $19.4 million related to the accounting treatment for the acquisition of the Nokia Siemens Networks microwave transport business.

"We continue to advance our strategic priorities," said DragonWave President and CEO Peter Allen. "Our partnership with Nokia Siemens Networks is still in the integration phase and involves a wide range of activities, including access to a wide range of major global operators. Following the June 1, 2012 closing of the acquisition of Nokia Siemens Networks' microwave transport business, we rationalized our operations and reduced costs; we will continue to manage our cost profile to achieve profitability as we gain greater visibility into revenue opportunities."

Cash, cash equivalents and restricted cash totaled $44 million, compared to $42.6 million at the end of the first quarter of fiscal year 2013.

Revenue for the first six months of fiscal year 2013 was $57.1 million, compared with $24.7 million for the first six months of 2012. Net loss for the first six months of fiscal 2013 was ($13.7) million or ($0.37) per basic and diluted share, compared with ($12.1) million or ($0.34) per basic and diluted share for the first six months of fiscal 2012.

DragonWave also announced today that Gerry Spencer, Chairman of the Board, is stepping down as a director for family reasons. "Gerry has made a significant contribution to DragonWave," said Mr. Allen. "We thank him for his service and wish him well in his future endeavours. Company director Claude Haw will become the new board chair. Claude has more than 30 years of experience in the technology and telecommunications industry. He first joined the DragonWave Board in 2003. I look forward to working with Claude in his new capacity."

Revenue Outlook for Third Quarter Fiscal Year 2013

DragonWave expects revenue for the third quarter of fiscal year 2013 to be in the range of $43 million to $50 million.

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, October 11, 2012.

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: (866) 393-0571
  • 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.

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 2013, our statement regarding our intentions with respect to our cost profile and the statements regarding our relationship with and the transactions involving Nokia Siemens Networks 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 revenue estimates include DragonWave's expectations regarding: the plans of its existing and new direct and indirect customers, the volume and timing of orders, shipments and revenue recognition; and the capacity of our supply chain to meet demand. Material factors and assumptions relating to our relationship with Nokia Siemens Networks and the NSN Transactions include the parties' beliefs regarding the industry and markets in which the parties operate; successful integration of the product lines acquired from Nokia Siemens Networks; and expectations regarding potential synergies and prospects for the business. There are risks arising out of the NSN Transactions, including that expected synergies will not materialize; that unexpected costs will be incurred to integrate the business; or that end-customer demand will not meet expectations. Material risks and uncertainties relating to the NSN Transactions are described under the heading "Risks and Uncertainties" in the MD&A dated July 11, 2012 and on pages 19-22 of the Company's Annual Information Form, dated May 11, 2012.

Readers are cautioned not to place undue reliance on forward-looking 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, in addition to those detailed above, 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 11, 2012 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's growth is dependent on the development and growth of the market for high-capacity wireless communications services.
  • 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.
  • 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's success depends on its ability to develop new products and enhance existing products.
  • DragonWave's quarterly revenue and operating results can be difficult to predict and can fluctuate substantially.
  • If DragonWave is required to change its pricing models to compete successfully, its margins and operating results may be adversely affected.
  • 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 amounts
As at As at
August 31, February 29,
2012 2012
Assets
Current Assets
Cash and cash equivalents43,586 52,798
Restricted cash393 177
Trade receivables32,328 9,850
Inventory31,116 27,043
Other current assets10,640 5,501
Contingent receivable8,041 -
Deferred tax asset179 69
126,283 95,438
Long Term Assets
Property and equipment9,944 5,184
Deferred tax asset1,818 1,308
Deferred financing cost447 -
Intangible assets13,680 6,264
Goodwill11,927 11,927
37,816 24,683
Total Assets164,099 120,121
Liabilities
Current Liabilities
Accounts payable and accrued liabilities45,843 12,720
Deferred revenue1,177 723
Capital lease obligation3,970 -
Contingent royalty- 372
Contingent consideration- 1,884
50,990 15,699
Long Term Liabilities
Debt facility15,000 -
Capital lease obligation1,492 -
Other long term liabilities588 1,063
Contingent royalty- 1,292
17,080 2,355
Commitments
Shareholders' equity
Capital stock179,373 172,264
Contributed surplus5,330 4,606
Deficit(79,149)(65,448)
Accumulated other comprehensive loss(9,689)(9,658)
Total Shareholder's equity95,865 101,764
Non-controlling interests164 303
Total Equity96,029 102,067
Total Liabilities and Shareholder's equity164,099 120,121
Shares issued & outstanding38,025,305 35,586,206
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Expressed in US $000's and per share amounts
Three months ended Six months ended
August 31, August 31, August 31, August 31,
2012 2011 2012 2011
REVENUE44,157 13,627 57,131 24,676
Cost of sales37,414 7,852 46,255 14,257
Gross profit6,743 5,775 10,876 10,419
15.3%42.4%19.0%42.2%
EXPENSES
Research and development12,139 6,105 16,538 12,371
Selling and marketing4,357 3,849 8,015 7,929
General and administrative8,513 3,717 13,783 7,680
Government assistance- (287)- (637)
25,009 13,384 38,336 27,343
Income (loss) before amortization of intangible assets and other items(18,266)(7,609)(27,460)(16,924)
Amortization of intangible assets(1,199)(622)(1,741)(1,209)
Accretion expense(30)(276)(52)(552)
Restructuring expense- - (798)-
Interest income (expense)(740)127 (711)211
Investment gain (loss)- (19)- 20
Impairment of intangible assets(1,148)(8,315)(4,017)(8,315)
Gain on change in estimate of contingent liabilities352 13,161 1,542 13,161
Gain on purchase of business19,397 - 19,397 -
Foreign exchange gain (loss)462 (36)(541)84
Income (loss) before income taxes(1,172)(3,589)(14,381)(13,524)
Income tax expense (recovery)- (1,310)(572)(1,301)
Net Income (loss)(1,172)(2,279)(13,809)(12,223)
Net Loss Attributable to Non-Controlling Interest50 73 108 127
Net Income (loss) applicable to shareholders(1,122)(2,206)(13,701)(12,096)
Foreign currency translation differences for foreign operations(6)7 62 10
Comprehensive Income (Loss)(1,166)(2,286)(13,871)(12,233)
Comprehensive Income (Loss) applicable to Non-Controlling Interest53 67 77 119
Comprehensive Income (Loss) applicable to shareholders(1,119)(2,212)(13,732)(12,104)
Income (loss) per share
Basic(0.03)(0.06)(0.37)(0.34)
Diluted(0.03)(0.06)(0.37)(0.34)
Weighted Average Shares Outstanding
Basic37,992,859 35,494,976 36,962,103 35,462,012
Diluted37,992,859 35,494,976 36,962,103 35,462,012
CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed in US $000's
Three months ended Six months ended
August 31, August 31, August 31, August 31,
2012 2011 2012 2011
Operating Activities
Net Income (Loss)(1,172)(2,279)(13,809)(12,223)
Items not affecting cash
Amortization of property and equipment1,724 845 2,478 1,674
Amortization of intangible assets1,199 622 1,741 1,209
Accretion expense30 276 52 552
Royalty amortization(58)(201)(151)(402)
Interest expense211 - 211 -
Rental expense957 - 957 -
Impairment of intangible assets1,148 8,315 4,017 8,315
Gain on change in estimate of contingent liabilities(352)(13,161)(1,542)(13,161)
Stock-based compensation388 582 792 1,074
Gain on purchase of business(19,397)- (19,397)-
Unrealized foreign exchange loss(467)72 649 73
Future income tax recovery- (1,310)(572)(1,301)
Inventory impairment2,639 104 2,673 161
(13,150)(6,135)(21,901)(14,029)
Changes in non-cash working capital items13,606 (2,072)14,069 (3,396)
456 (8,207)(7,832)(17,425)
Investing Activities
Acquisition of property and equipment(903)(220)(1,123)(669)
Acquisition of intangible assets(163)(89)(629)(403)
Acquisition of business(12,730)- (12,730)-
Purchase of short term investments- - - (22,432)
Maturity of short term investments- 6,977 - 24,485
(13,796)6,668 (14,482)981
Financing Activities
Initial formation contribution by non-controlling interest in DW-HFCL- - - 555
Debt facility15,000 - 15,000 -
Deferred financing cost(757)- (1,192)-
Issuance of common shares net of issuance costs60 166 103 344
14,303 166 13,911 899
Effect of foreign exchange on cash and cash equivalents375 (86)(809)(92)
Net increase (decrease) in cash and cash equivalents1,338 (1,459)(9,212)(15,637)
Cash and cash equivalents at beginning of period42,248 63,641 52,798 77,819
Cash and cash equivalents at end of period43,586 62,182 43,586 62,182
Cash paid during the period for interest13 - 13 -

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