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DragonWave Inc. Reports Third Quarter Fiscal Year 2014 Results

OTTAWA, CANADA -- (Marketwired) -- 01/13/14 -- 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 third quarter ended November 30, 2013. All figures are in U.S. dollars and were prepared in accordance with U.S. generally accepted accounting principles.

Revenue for the third quarter of fiscal year 2014 was $22.2 million, compared with $25.5 million in the second quarter of fiscal year 2014 and $38.5 million in the third quarter of fiscal year 2013. Revenue from the Nokia Solutions and Networks ("NSN") channel represented 51% of revenue in the fiscal quarter.

Gross margin for the third quarter of fiscal year 2014 was 11.1%, compared with 11.0% in the second quarter of fiscal year 2014 and 18.6% in the third quarter of fiscal year 2013. We expect solid gross margin improvement starting in Q4.

On January 10, 2014 we signed a new supply agreement with a major US-based carrier. Activities associated with the first project with this carrier are underway. Deployments from the projects anticipated under this agreement are expected to commence during the first half of 2014.

"Network rollout plans in the United States and India are at the core of our future growth strategy. To position ourselves for these opportunities we have increased and extended our credit facilities in addition to the cash we raised in September" said DragonWave President and CEO, Peter Allen.

Net loss applicable to shareholders in the third quarter of fiscal year 2014 was $5.5 million or ($0.12) per basic and diluted share. This compares to a net loss applicable to shareholders of $10.5 million or ($0.28) per basic diluted share in the second quarter of fiscal year 2014 and net loss of $13.9 million or ($0.36) per basic and diluted share in the third quarter of fiscal year 2013.

Cash and cash equivalents totaled $23.5 million at the end of the third quarter of fiscal year 2014, compared to $9.8 million at the end of the second quarter of fiscal year 2014.

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 January 14, 2014.

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, including a range of products ideally suited to support the emergence of underlying small cell networks. 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 constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include statements as to DragonWave's growth opportunities and the potential benefits of, and demand for, DragonWave's products as well as our expectations regarding margin improvement. These statements are subject to certain assumptions, risks and uncertainties, including our view of the relative position of DragonWave's products compared to competitive offerings in the industry and, in relation to expected margin improvement, the timing of revenues and expenses. Readers are cautioned not to place undue reliance on such statements. DragonWave's actual results, performance, achievements and developments 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 the public documents filed by DragonWave with U.S. and Canadian securities regulatory authorities. DragonWave assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

Forward-looking 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. Material risks and uncertainties relating to our business are described under the heading "Risks and Uncertainties" in the MD&A dated January 13, 2014 and in the Company'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.

                        CONSOLIDATED BALANCE SHEETS
                Expressed in US $000's except share amounts
                                (Unaudited)

                                                       As at          As at
                                                November 30,   February 28,
                                                        2013           2013
                                              ------------------------------
Assets
Current Assets
  Cash and cash equivalents                           23,545         22,959
  Trade receivables                                   19,009         35,452
  Inventory                                           31,642         32,722
  Other current assets                                 4,920          6,077
  Contingent receivable                                    -         13,843
  Deferred tax asset                                      69             69
                                              ------------------------------
                                                      79,185        111,122
Long Term Assets
  Property and equipment                               3,848          7,444
  Deferred tax asset                                   1,536          1,581
  Deferred financing cost                                  -            149
  Intangible assets                                    1,617          2,771
  Goodwill                                            11,927         11,927
                                              ------------------------------
                                                      18,928         23,872

Total Assets                                          98,113        134,994
                                              ------------------------------
                                              ------------------------------

Liabilities
Current Liabilities
  Accounts payable and accrued liabilities            26,484         56,962
  Debt facility                                            -         15,000
  Deferred revenue                                       664          1,163
  Capital lease obligation                             1,985          3,251
  Contingent liabilities                                  50            255
                                              ------------------------------
                                                      29,183         76,631

Long Term Liabilities
  Debt facility                                       15,000              -
  Capital lease obligation                                 -          1,451
  Warrant liability                                    2,260              -
  Other long term liabilities                            625            783
  Contingent liabilities                                   -            519
                                              ------------------------------
                                                      17,885          2,753

Commitments

Shareholders' equity
  Capital stock                                      196,853        179,429
  Contributed surplus                                  6,948          6,047
  Deficit                                           (142,840)      (120,197)
  Accumulated other comprehensive loss                (9,679)        (9,685)
                                              ------------------------------
Total Shareholders' equity                            51,282         55,594

  Non-controlling interest                              (237)            16
                                              ------------------------------
Total Equity                                          51,045         55,610

Total Liabilities and Equity                          98,113        134,994
                                              ------------------------------
                                              ------------------------------


Shares issued & outstanding                       52,823,364     38,048,297

                   CONSOLIDATED STATEMENTS OF OPERATIONS
         Expressed in US $000's except share and per share amounts
                                (Unaudited)

                               Three months ended         Nine months ended
                        ----------------------------------------------------
                        November 30, November 30, November 30, November 30,
                                2013         2012         2013         2012
                        ----------------------------------------------------


REVENUE                       22,169       38,452       72,154       95,583
 Cost of sales                19,709       31,314       64,080       77,569
                        ----------------------------------------------------
Gross profit                   2,460        7,138        8,074       18,014
                        ----------------------------------------------------

EXPENSES
 Research and
  development                  5,000        9,769       15,085       26,307
 Selling and marketing         3,479        3,935       10,036       11,950
 General and
  administrative               4,144        6,218       13,325       20,001
                        ----------------------------------------------------
                              12,623       19,922       38,446       58,258
                        ----------------------------------------------------
Income (loss) before
 amortization of
 intangible assets and
 other items                 (10,163)     (12,784)     (30,372)     (40,244)

 Amortization of
  intangible assets             (500)      (1,162)      (1,496)      (2,903)
 Accretion expense               (53)         (16)        (174)         (68)
 Restructuring expense             -         (839)           -       (1,637)
 Interest income
  (expense)                     (392)        (500)      (1,310)      (1,211)
 Impairment of
  intangible assets                -       (4,407)           -       (8,424)
 Equity issuance
  expenses                      (662)           -         (662)           -
 Gain on change in
  estimate                     2,970        5,416        3,312        6,958
 Gain on contract
  amendment                      417            -        5,702            -
 Gain on purchase of
  business                         -            -            -       19,397
 Fair value adjustment -
  warrant liability            3,587            -        3,587            -
 Foreign exchange gain
  (loss)                        (724)         419       (1,219)        (122)
                        ----------------------------------------------------
Income (loss) before
 income taxes                 (5,520)     (13,873)     (22,632)     (28,254)

 Income tax expense
  (recovery)                     102           63          270         (509)
                        ----------------------------------------------------
Net Income (loss)             (5,622)     (13,936)     (22,902)     (27,745)

 Net Loss Attributable
  to Non-Controlling
  Interest                       113           69          259          177
                        ----------------------------------------------------
Net Income (loss)
 applicable to
 shareholders                 (5,509)     (13,867)     (22,643)     (27,568)

Income (loss) per share
 Basic                         (0.12)       (0.36)       (0.55)       (0.74)
 Diluted                       (0.12)       (0.36)       (0.55)       (0.74)

Weighted Average Shares
 Outstanding
 Basic                    47,329,275   38,033,222   41,144,953   37,313,926
 Diluted                  47,329,275   38,033,222   41,144,953   37,313,926

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

Russell Frederick
CFO
DragonWave Inc.
[email protected]
613-599-9991 ext. 2253

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

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