DragonWave Inc (DRWI)

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Dragonwave, Inc. (DRWI)

F2Q12 Earnings Call

October 11, 2012 8:30 am ET


John Lawlor – Vice President of Investor Relations

Peter Allen – President, Chief Executive Officer & Director

Russell Frederick – Chief Financial Officer, Vice President Finance, Secretary & Director


Eyal Ofir – Canaccord Genuity

Blaine Carroll – Avian Securities

Maher Yaghi – Desjardins Securities

Paul McWilliams – Next Inning Technology

Brad Erickson – Pacific Crest Securities

Steven Li – Raymond James

Kris Thompson – National Bank Financial

Scott Penner – TD Newcrest



Welcome to the Dragonwave second quarter fiscal year 2013 results conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to your host for today Mr. John Lawlor, Vice President of Investor Relations. Mr. Lawlor, please go ahead sir.


I would like to welcome you to our second quarter fiscal year 2013 financial results conference call. With me today are Dragonware’s Chief Executive Officer Peter Allen and the company’s Chief Financial Officer, Russell Frederick. 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’ve 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 second quarter results. 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 our 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 risks factors and assumptions related to our revenue forecast for the upcoming quarter include our expectations regarding our customers’ plans and requirements and 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 Nokia Siemens Networks 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 Nokia Siemens Networks, our expectations regarding potential synergies and prospects for the business, and our expectations regarding end customer demand.

Slide Three please. Russell 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. We plan to finish the call by 9:30 a.m. Eastern Time.

Russell Frederick

I would also like to welcome everyone to the call this morning. On Slide Four please. I would like to remind everyone that all currency figures are in US dollars and were prepared in accordance to US Generally Accepted Accounting Principles unless we specifically state otherwise.

On Slide Four you can see that total revenue for the second quarter of fiscal year 2013 was $44.2 million compared to $13 million in the first quarter of fiscal year 2013 and $13.6 million in the second quarter of fiscal year 2012. Dragonwave had one customer, namely Nokia Siemens Networks which generated more than 10% of revenue in the second quarter. Revenues for our new NSN OEM channel partner totaled $33.6 million or 76% of total revenues in the quarter.

On Slide Five please. Gross margin for the second quarter of fiscal year 2013 was 15% compared to 32% in the first quarter fiscal year 2013 and 42% in the second quarter of fiscal year 2012. The gross margin in the second quarter 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%.

Total expenses in the second quarter of fiscal year 2013 were $25 million compared to $13.3 million in the first quarter of fiscal year 2013 and $13.4 million in the second quarter of fiscal year 2012. We have taken actions to actualize and reduce our expenses. We expect that expenses will reduce to approximately $19 million in our third quarter before restructuring charges associated with actions we currently have in place.

Comprehensible loss applicable to shareholders in the second quarter of fiscal year 2013 was $1.1 million or $0.03 per basic and diluted share compared to a loss of $2.2 million or $0.06 per basic and diluted share in the second quarter of fiscal year 2012. These results include a one-time gain of $19.4 million associated with the purchase price accounting treatment for the NSN acquisition.

Please move to Slide Six which highlights some of the key balance sheet metrics. Days sales outstanding for the second quarter of fiscal year 2013 was 46 days based on ending balance. This compares to 102 days in the first quarter of fiscal year 2013 and 49 days in the second quarter of fiscal year 2012. Inventory at the end of the second quarter of 2013 stood at $31.1 million compared to $25.6 million at the end of the first quarter. Inventory turns in the second quarter were 3.4 compared to .6 turns in the first quarter.

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