DragonWave Inc. Reports First Quarter Fiscal Year 2014 Results

OTTAWA, CANADA--(Marketwired - July 10, 2013) - 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 first quarter ended May 31, 2013. All figures are in U.S. dollars and were prepared in accordance with U.S. generally accepted accounting principles.

Revenue for the first quarter of fiscal year 2014 was $24.5 million, compared with $28.3 million in the fourth quarter of fiscal year 2013 and $13.0 million in the first quarter of fiscal year 2013. Revenue from the Nokia Siemens Networks channel represented 57% of revenue in the first quarter of fiscal 2014.

Gross margin for the first quarter of fiscal year 2014 was 11.5%, compared with 5.3% in the fourth quarter of fiscal year 2013 and 31.9% in the first quarter of fiscal year 2013. The gross margin in the fourth quarter of fiscal year 2013 reflects the inclusion of an inventory impairment provision of $0.8 million.

Business highlights include:

• In the first fiscal quarter we reported results of our renewed framework with Nokia Siemens Networks, which was originally announced on April 10, 2013. This included a cash payment to DragonWave in the quarter of $13.8 million.
• Three of our major existing service provider customers in India, Southeast Asia and Africa are engaging in network expansions, starting in the second fiscal quarter.
• Industry developments include recent reports of a two year $16 billion investment in Sprint's network by Softbank, together with Sprint's acquisition of Clearwire.
• We recently announced the inclusion of DragonWave products in the Cisco® Small Cell Wireless Backhaul Ecosystem.
• We are also involved in a pilot small cell wireless backhaul deployment with a major Asian carrier.
• Our integration and restructuring activities yielded a 46% reduction in operating expenses compared to Q2 last year.

"We have made progress on multiple fronts. We are working hard with Nokia Siemens Networks to build the sales funnel for microwave, progressing our direct relationships particularly in the United States and India, advancing in the important area of small cell backhaul, and our operating expenses are declining as we complete our integration and restructuring activities" said DragonWave President and CEO, Peter Allen. "We will continue to have a strong focus on revenue growth and improving our margins."

Net loss applicable to shareholders in the first quarter of fiscal year 2014 was $6.6 million or ($0.17) per basic and diluted share. This compares to a net loss applicable to shareholders of $27.2 million or ($0.71) per basic and diluted share in the fourth quarter of fiscal year 2013 and net loss applicable to shareholders of $12.6 million or ($0.35) per basic and diluted share in the first quarter of fiscal year 2013.

Cash, cash equivalents, and restricted cash totaled $23.4 million at the end of the first quarter of fiscal year 2014, compared to $23.0 million at the end of the fourth quarter of fiscal year 2013.

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 on July 11, 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® and Horizon® are registered trademarks of DragonWave Inc.

Forward-Looking Statements

Certain statements in this release, including our statements regarding our relationship with and the transactions involving Nokia Siemens Networks, our expectations regarding customer network expansions, our efforts to develop our direct customer relationships, and our plans and expectations regarding operating expense reductions, revenue growth and margin, 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 forward-looking statements include DragonWave's expectations and plans regarding:

• The successful implementation of our renewed framework with Nokia Siemens Networks that was announced on April 10, 2013, including sales growth from Nokia Siemens Networks as a result of the renewed framework.

• Our ability to obtain operating expense reductions through measures including consolidation and rationalization of the business acquired from Nokia Siemens Networks, migration to new contract manufacturers, and optimization of our logistical framework to reduce overhead costs related to hardware sales.

There are risks associated with these assumptions, including that expected synergies will not materialize; that unexpected costs will be incurred; or that end-customer demand will not meet expectations.

Material risks and uncertainties relating to our business are described under the headings "Risks and Uncertainties" and "Liquidity Discussion" in the MD&A, dated July 10, 2013, and on pages 27-48 of the Company's Annual Information Form, dated May 17, 2013.

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 17, 2013 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.

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
		May 31,		February 28,
		2013		2013
Assets
Current Assets
	Cash and cash equivalents	22,044		22,959
	Restricted cash	1,308		-
	Trade receivables	18,917		35,452
	Inventory	35,258		32,722
	Other current assets	5,203		6,077
	Contingent receivable	-		13,843
	Deferred tax asset	69		69
		82,799		111,122
Long Term Assets
	Property and equipment	5,524		7,444
	Deferred tax asset	1,568		1,581
	Deferred financing cost	-		149
	Intangible assets	2,436		2,771
	Goodwill	11,927		11,927
		21,455		23,872
Total Assets		104,254		134,994
Liabilities
Current Liabilities
	Accounts payable and accrued liabilities	34,783		56,962
	Debt facility	15,000		15,000
	Deferred revenue	1,060		1,163
	Capital lease obligation	1,890		3,251
	Contingent liabilities	516		255
		53,249		76,631
Long Term Liabilities
	Capital lease obligation	988		1,451
	Other long term liabilities	558		783
	Contingent liabilities	128		519
		1,674		2,753
Commitments
Shareholders' equity
	Capital stock	179,547		179,429
	Contributed surplus	6,325		6,047
	Deficit	(126,822	)	(120,197	)
	Accumulated other comprehensive loss	(9,683	)	(9,685	)
Total Shareholder's equity		49,367		55,594
	Non-controlling interests	(36	)	16
Total Equity		49,331		55,610
Total Liabilities and Equity		104,254		134,994

CONSOLIDATED STATEMENTS OF OPERATIONS
Expressed in US $000's except share and per share amounts
		Three months ended
		May 31,		May 31,
		2013		2012
REVENUE		24,532		12,974
	Cost of sales	21,712		8,841
Gross profit		2,820		4,133
EXPENSES
	Research and development	5,302		4,399
	Selling and marketing	3,382		3,658
	General and administrative	4,748		5,270
		13,432		13,327
Income (loss) before amortization of intangible assets and other items		(10,612	)	(9,194	)
	Amortization of intangible assets	(559	)	(542	)
	Accretion expense	(65	)	(22	)
	Restructuring expense	-		(798	)
	Interest income (expense)	(538	)	29
	Impairment of intangible assets	-		(2,869	)
	Gain on change in estimate	-		1,190
	Gain on contract amendment	5,285		-
	Foreign exchange gain (loss)	(98	)	(1,003	)
Income (loss) before income taxes		(6,587	)	(13,209	)
	Income tax expense (recovery)	92		(572	)
Net Income (loss)		(6,679	)	(12,637	)
	Net Loss Attributable to Non-Controlling Interest	54		58
Net Income (loss) applicable to shareholders		(6,625	)	(12,579	)
Income (loss) per share
	Basic	(0.17	)	(0.35	)
	Diluted	(0.17	)	(0.35	)
Weighted Average Shares Outstanding
	Basic	38,059,919		35,931,347
	Diluted	38,059,919		35,931,347