Profitability timeline up in the air for DragonWave following Q3 loss

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Executives at Ottawa-based DragonWave are still unclear about when the company will reach the break-even point after the company posted another multi-million dollar loss during the third quarter of its fiscal year.

DragonWave's Peter Allen. (Photo by Mark Holleron)

By Jacob Serebrin

While the company’s goal remains to post a profit within the next six months, even its own executives aren’t confident it can.

“It certainly won't be Q4. It could be Q1. Our pipeline is strong and is supportive. I can't say for certainty that it would be Q1, but I would certainly expect us to make significant progress in Q1,” said Peter Allen, CEO of the wireless broadband component supplier, speaking on a conference call with investors on Tuesday morning.

The company reported revenue of US$22.2 million during the three-month period that ended on Nov. 30.

That’s down from the previous quarter, when the company reported revenue of $25.5 million. It’s also a drop off from the same period last year, which saw the company report revenue of $38.5 million.

“Q3 was a frustrating quarter but we are sustained in our drive,” said Mr. Allen.

“We continue to wrestle with timing variability on deployments,” he added, blaming the company’s poor performance on “carrier initiated delays” in Africa, Asia and the Middle East.

“These delays, which prevented the modest growth that we were expecting, were driven by the desire of these carriers to maximize the impact of their network deployments,” he said.

Despite lower than expected revenue, the company’s net loss applicable to shareholders of $5.5 million was down from the net loss of $13.9 million it reported during the same period a year ago.

It’s also down from the net loss of $10.5 million DragonWave reported during the second quarter of 2014.

“I believe our results continue to show our strong focus on cost control, and this will continue, as will our focus on margin improvement,” said Mr. Allen.

While the company’s expenses were up slightly from the previous quarter – going to $12.6 million from $12.4 million – they were down from the same period a year ago, when DragonWave’s expenses were $19.9 million.

“The major reasons for the decrease in expenses versus the prior year was a result of the work done to extract the integration benefits of the [Nokia Solutions and Networks] transaction and the elimination of the Italian services agreement earlier this year,” according to DragonWave’s CFO Russell Frederick.

The termination of the Italian services agreement cost DragonWave approximately $9 million, which is still being paid to NSN. However, sales through the NSN account for 51 per cent of DragonWave’s total revenue.

Mr. Allen said the company plans to focus on increasing its gross margin in the coming quarter.

Gross margin was down to 11.1 per cent from 18.6 per cent from the year before. It was also flat from the previous quarter, when the company had margins of 11 per cent.

Mr. Allen said the company’s work to increase margins is “starting to crystallize with benefits in Q4 and beyond.”

Organizations: DragonWave

Geographic location: United States, India

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