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DragonWave Inc. Reports Third Quarter Fiscal Year 2013 Results

OTTAWA, CANADA--(Marketwire - Jan 9, 2013) - DragonWave Inc. (DWI.TO)(DRWI) a leading global supplier of packet microwave radio systems for mobile and access networks, today reported financial results for its third quarter of fiscal year 2013, ended November 30, 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 third quarter of fiscal year 2013 was $38.5 million, compared with $11.8 million in the third quarter of fiscal year 2012 and $44.2 million in the second quarter of fiscal year 2013. DragonWave had one customer, Nokia Siemens Networks, who generated more than 10% of revenue in the third quarter of fiscal year 2013. Revenue through the new Nokia Siemens Networks channel totaled $25.6 million in the quarter.

Gross margin for the third quarter of fiscal year 2013 was 19%, compared with 41% in the third quarter of fiscal year 2012 and 15% in the second 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 third quarter of fiscal year 2013 was ($13.9) million or ($0.36) per basic and diluted share, compared to a loss of ($8.0) million or ($0.23) per basic and diluted share in the third quarter of fiscal year 2012. 

"While visibility into our revenue pipeline has been challenging, we have continued to work hard on completing the integration activities of our strategic partnership with Nokia Siemens Networks to position ourselves for growth," said DragonWave President and CEO Peter Allen. "These efforts combined with our continued focus on cost reduction are targeted at achieving a profitable business model."

Cash, cash equivalents and restricted cash totaled $36.8 million, compared to $44.0 million at the end of the second quarter of fiscal year 2013.

Revenue for the first nine months of fiscal year 2013 was $95.6 million, compared with $36.5 million for the first nine months of 2012. Net loss applicable to shareholders for the first nine months of fiscal 2013 was ($27.6) million or ($0.74) per basic and diluted share, compared with ($20.1) million or ($0.57) per basic and diluted share for the first nine months of fiscal 2012.

Revenue Outlook for Fourth Quarter Fiscal Year 2013

DragonWave expects revenue for the fourth quarter of fiscal year 2013 to be in the range of $40 million to $45 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, January 10, 2013.

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.

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 fourth quarter of fiscal year 2013, our statement regarding our intentions with respect to our cost profile and target of a profitable business, and the statements regarding our relationship with and the transactions involving Nokia Siemens Networks (the "NSN Transactions") 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 January 9, 2013 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  
  November 30,   February 29,  
  2012   2012  
Assets        
Current Assets        
  Cash and cash equivalents 36,444   52,798  
  Restricted cash 393   177  
  Trade receivables 31,805   9,850  
  Inventory 29,669   27,043  
  Other current assets 8,968   5,501  
  Contingent receivable 13,739   -  
  Deferred tax asset 241   69  
  121,259   95,438  
Long Term Assets        
  Property and equipment 8,734   5,184  
  Deferred tax asset 1,693   1,308  
  Deferred financing cost 298   -  
  Intangible assets 8,522   6,264  
  Goodwill 11,927   11,927  
  31,174   24,683  
         
Total Assets 152,433   120,121  
         
Liabilities        
Current Liabilities        
  Accounts payable and accrued liabilities 49,213   12,720  
  Deferred revenue 973   723  
  Capital lease obligation 2,617   -  
  Contingent royalty -   372  
  Contingent consideration -   1,884  
  52,803   15,699  
         
Long Term Liabilities        
  Debt facility 15,000   -  
  Capital lease obligation 1,444   -  
  Other long term liabilities 659   1,063  
  Contingent royalty -   1,292  
  17,103   2,355  
         
Commitments        
         
Shareholders'' equity        
  Capital stock 179,407   172,264  
  Contributed surplus 5,726   4,606  
  Deficit (93,016 ) (65,448 )
  Accumulated other comprehensive loss (9,685 ) (9,658 )
Total Shareholders'' equity 82,432   101,764  
         
  Non-controlling interests 95   303  
Total Equity 82,527   102,067  
         
Total Liabilities and Shareholders'' equity 152,433   120,121  
         
Shares issued & outstanding 38,041,010   35,586,206  
 
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
Expressed in US $000''s except share and per share amounts
 
  Three months ended   Nine months ended  
  November 30,   November 30,   November 30,   November 30,  
  2012   2011   2012   2011  
                 
REVENUE 38,452   11,830   95,583   36,506  
  Cost of sales 31,314   6,992   77,569   21,249  
Gross profit 7,138   4,838   18,014   15,257  
                 
EXPENSES                
  Research and development 9,769   5,380   26,307   17,751  
  Selling and marketing 3,935   3,793   11,950   11,722  
  General and administrative 6,218   4,985   20,001   12,665  
  Government assistance -   (265 ) -   (902 )
  19,922   13,893   58,258   41,236  
Income (loss) before other items (12,784 ) (9,055 ) (40,244 ) (25,979 )
                 
  Amortization of intangible assets (1,162 ) (404 ) (2,903 ) (1,613 )
  Accretion expense (16 ) (60 ) (68 ) (612 )
  Restructuring expense (839 ) -   (1,637 ) -  
  Interest income (expense) (500 ) 143   (1,211 ) 354  
  Investment gain -   1   -   21  
  Impairment of intangible assets (4,407 ) -   (8,424 ) (8,315 )
  Gain on change in estimate 5,416   1,362   6,958   14,523  
  Gain on purchase of business -   -   19,397   -  
  Foreign exchange gain (loss) 419   (202 ) (122 ) (118 )
Income (loss) before income taxes (13,873 ) (8,215 ) (28,254 ) (21,739 )
                 
  Income tax expense (recovery) 63   (157 ) (509 ) (1,458 )
Net Income (loss) (13,936 ) (8,058 ) (27,745 ) (20,281 )
                 
  Net Loss Attributable to Non-Controlling Interest 69   41   177   168  
Net Income (loss) applicable to shareholders (13,867 ) (8,017 ) (27,568 ) (20,113 )
                 
  Foreign currency translation differences for foreign operations (8 ) 57   54   75  
Comprehensive Income (Loss) (13,928 ) (8,115 ) (27,799 ) (20,356 )
                 
  Comprehensive Income (Loss) applicable to Non-Controlling Interest (4 ) 28   73   37  
Comprehensive Income (Loss) applicable to shareholders (13,871 ) (7,989 ) (27,495 ) (20,076 )
                 
Income (loss) per share                
  Basic (0.36 ) (0.23 ) (0.74 ) (0.57 )
  Diluted (0.36 ) (0.23 ) (0.74 ) (0.57 )
                 
Weighted Average Shares Outstanding                
  Basic 38,033,222   35,542,247   37,313,926   35,486,924  
  Diluted 38,033,222   35,542,247   37,313,926   35,486,924  
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
Expressed in US $000''s
 
  Three months ended   Nine months ended  
  November 30,   November 30,   November 30,   November 30,  
  2012   2011   2012   2011  
                 
Operating Activities                
Net Income (Loss) (13,936 ) (8,058 ) (27,745 ) (20,281 )
Items not affecting cash                
  Amortization of property and equipment 1,672   839   4,150   2,513  
  Amortization of intangible assets 1,162   404   2,903   1,613  
  Accretion expense 16   60   68   612  
  Royalty amortization -   (21 ) (151 ) (423 )
  Interest expense 210   -   421   -  
  Rental expense 957   -   1,914   -  
  Impairment of intangible assets 4,407   -   8,424   8,315  
  Gain on change in estimate of contingent liabilities (5,416 ) (1,362 ) (6,958 ) (14,523 )
  Stock-based compensation 404   475   1,196   1,549  
  Gain on purchase of business -   -   (19,397 ) -  
  Unrealized foreign exchange loss (670 ) 56   (21 ) 130  
  Future income tax recovery -   (157 ) (572 ) (1,458 )
  Inventory impairment 18   29   2,691   190  
  (11,176 ) (7,735 ) (33,077 ) (21,763 )
                 
Changes in non-cash working capital items 5,012   (3,220 ) 19,081   (6,551 )
  (6,164 ) (10,955 ) (13,996 ) (28,314 )
                 
Investing Activities                
  Acquisition of property and equipment (462 ) (274 ) (1,585 ) (943 )
  Acquisition of intangible assets (411 ) (91 ) (1,040 ) (494 )
  Acquisition of business -   -   (12,730 ) -  
  Purchase of short term investments -   -   -   (22,432 )
  Maturity of short term investments -   7,071   -   31,490  
  (873 ) 6,706   (15,355 ) 7,621  
                 
Financing Activities                
  Initial formation contribution by non-controlling interest in DW-HFCL -   -   -   555  
  Capital lease obligation (809 ) -   (809 ) -  
  Debt facility -   -   15,000   -  
  Deferred financing cost -   -   (1,192 ) -  
  Issuance of common shares net of issuance costs 26   106   129   450  
  (783 ) 106   13,128   1,005  
                 
Effect of foreign exchange on cash and cash equivalents 678   (112 ) (131 ) (204 )
                 
Net increase (decrease) in cash and cash equivalents (7,142 ) (4,255 ) (16,354 ) (19,892 )
                 
Cash and cash equivalents at beginning of period 43,586   62,182   52,798   77,819  
                 
Cash and cash equivalents at end of period 36,444   57,927   36,444   57,927  
                 
Cash paid during the period for interest 579   -   592   -