DragonWave execs unfazed by disappointing fourth quarter

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Executives at Ottawa’s DragonWave didn’t spend much time talking about what they described as a disappointing fourth quarter during a conference call with investors on Thursday morning.

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

By Jacob Serebrin

Instead, they focused on the first quarter of the new fiscal year, which they say will bring a big jump in revenue.

“Over recent quarters, I have described how we believe that revenues would positively inflate. Although this has been later than expected, I am pleased to be able to report that this is now happening,” CEO Peter Allen said.

According to Mr. Allen, DragonWave (TSX:DWI) is expecting sequential “revenue growth of over 50 per cent,” during the current quarter, which ends on May 31.

That would be a big change from the fourth quarter of its fiscal 2014.

DragonWave reported revenue of US$17.9 million during the three-month period that ended on Feb. 28. That was down from $28.3 million during the same period the year before and from $22.2 million during the previous quarter.

Despite the decline in revenue, the company’s net loss shrunk when compared with the year before from $27.2 million to $11.6 million. However, it was up from the previous quarter, when the company reported a net loss of $5.5 million.

The year-over-year improvement was due largely to lower staff costs and a higher gross margin, which rose to 14.5 per cent from 5.3 per cent last year. That increased gross margin was due to “improved product cost coming from our contract manufacturers,” said Russell Frederick, the company’s CFO.

For the fiscal year, DragonWave reported revenue of $90 million, down from $123.9 million during the previous fiscal year. Its net loss was $34.2 million, down from $54.7 million.

The company’s relationship with Nokia continues to be a major source of income, bringing in 68 per cent of the firm’s revenue in the fourth quarter, up from 61 per cent the year before and 51 per cent during the previous quarter.

While things may be looking up for the new fiscal year, Mr. Frederick said there’s “still a long way to go.”

He said he expects the company to reach the cash-flow break-even point some time this year, “but I would be reluctant to say more.”

While the company did not provide specific guidance, Mr. Allen said he expects revenue growth to continue in the second quarter of the new fiscal year.

“The underlying level of demand and opportunities is growing,” he said. “DragonWave has never been involved in more bids and trials.”

A recently completed spectrum auction in India, which will see 4G networks rolled out in the country, and an upcoming spectrum auction in Pakistan, which will bring the country’s networks up to 3G and 4G, are leading to big opportunities for DragonWave, he said.

Earlier this week, DragonWave announced that it has opened a service centre in India to improve turnaround times on repairs and support for Indian customers.

Organizations: DragonWave, TSX, Nokia

Geographic location: India, Pakistan

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