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DragonWave Inc. Reports Third Quarter Fiscal Year 2013 Results

OTTAWA, CANADA -- (Marketwire) -- 01/09/13 -- 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 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    November    November    November 
                                    30,         30,         30,         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    November    November    November 
                                    30,         30,         30,         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           - 
                            ------------------------------------------------
                            ------------------------------------------------

Contacts:
Investor Contact:
John Lawlor
VP, Investor Relations
DragonWave Inc.
[email protected]
613-895-7000

Media Contact:
Nadine Kittle
Marketing Communications
DragonWave Inc.
[email protected]
613-599-9991 ext 2262

Becky Obbema
Interprose Public Relations
(for DragonWave)
[email protected]
(408) 778-2024

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