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F3Q13 Earnings Conference Call
January 10, 2013, 8:30 am ET
Russell Frederick - CFO
Peter Allen - President, CEO
Paul McWilliams - Next Inning Technology
Doug Taylor - TD Securities
Maher Yaghi - Desjardins
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Thank you operator. Good morning everyone. I would like to welcome you to our third quarter fiscal year 2013 financial results conference call. With me today are DragonWave’s Chief Executive, Peter Allen. John Lawlor is away today.
As a reminder, today’s call is being webcast live on the DragonWave investor relations website at www.DragonwaveInc.com. You can access presentation slides from the same site. The webcast will be archived on our site and available for replay shortly after we conclude the call.
I hope you have had an opportunity to read the earnings press release we issued after the close of markets in North America yesterday, which provides detailed financial information on DragonWave’s third quarter results.
On slide two please. Before I begin, I would like to remind everyone that today’s call contains forward-looking statements or information. Actual results could differ materially from the conclusions, forecasts, or projections in the forward-looking information.
The forward-looking information reflects certain material factors or assumptions. Factors which could cause actual results to differ materially, or that were applied in drawing such conclusions or making such forecasts or projections, are contained in the risks factors section of our annual information form dated May 11, 2012, which has been filed on SEDAR and EDGAR.
Material risk factors and assumptions related to our revenue forecast for the upcoming quarter include our expectation regarding our customers’ plans and requirements, the volume and timing of orders, shipments, and revenue recognition.
Material risk factors and assumptions relating to our expectations for the Microwave Transport Business acquired from NSN and our relationship with NSN include our beliefs regarding the growing prospects in our industry and markets, our ability to successfully integrate the product lines acquired from NSN, our expectations regarding potential synergies and prospects for the business, and our expectations regarding end customer demand.
On slide three, I will now revenue the company’s financial results, and then Peter will provide a business update and discussion. Following Peter’s remarks, we will open the call for questions. And we do plan to finish the call by 9:30 this morning, Eastern time.
On slide four please, I would like to remind everyone that all currency figures are in U.S. dollars, and were prepared in accordance with us generally accepted accounting principles, unless we specifically state otherwise.
On slide four, you can see that the total revenue for the third quarter of fiscal year 2013 was $38.5 million, compared to $44.2 million in the second quarter of fiscal year 2013, and $11.8 million in the third quarter of fiscal year 2012.
DragonWave had one customer, namely Nokia Siemens Networks, who generated more than 10% of revenue in the third quarter. Revenue through our new NSN OEM channel partner totaled $25.6 million, or 67% of total revenue in the quarter.
On slide five, please. Gross margin for the third quarter of fiscal year 2013 was 19%, compared with 15% in the second quarter of fiscal year 2013, and 41% in the third quarter of fiscal year 2012. Let me remind you that the gross margin in the second quarter reflected an inclusion of an inventory impairment provision of $2.6 million. Without this inventory provision, the gross margin in the second quarter was 21%.
Total expenses in the third quarter of fiscal year 2013 were $19.9 million, compared to $25 million in the second quarter of fiscal year 2013, and $13.9 million in the third quarter of fiscal year 2012. We have taken action to rationalize and reduce our expenses.
Because the revenue levels are below original expectations, you will see a gain on the P&L of $5.4 million as a result to an increase to a contingent receivable balance. This is almost completely offset by an impairment charge of $4.4 million taken against the tangible assets.
The 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 million or $0.23 per basic and diluted share in the third quarter in fiscal year 2012.
Please move to Slide 6, which highlights some of the key balance sheet metrics. Day sales outstanding for the third quarter of fiscal year 2013 was 71 days based on ending balance. This compares to 46 days in the second quarter of fiscal year 2013 and 102 days in the third quarter of fiscal year 2012.
Inventory at the end of the third quarter of 2013 stood at $29.7 million compared to $31.1 million at the end of the second quarter. Inventory turns in the third quarter were 4.1 compared to 3.4 turns in the second quarter.
Total cash, cash equivalents and restricted cash was $36.8 million at the end of the third quarter of fiscal year 2013 compared to $44 million at the end of the second quarter where cash used is just $7.2 million.