DragonWave Reports In-line But Unsatisfactory First Quarter Results

On Thursday, before market opened, DragonWave (NASDAQ:DRWI) released first quarter results last night. Results remained in-line with updated outlook. Revenue of $26.3 million was in line with updated outlook of $27 million. EPS -$0.08 was in-line with our expectation for -$0.09. Two customers each represented more than 10% of revenue.

Nokia comprised 52% of revenue, which is in-line with historical proportions and we think Reliance Jio represented 11%. With the persisted concentration at Nokia, we think that the Nokia- Alcatel Lucent merger poses considerable risks to company’s business. The firm is presently undergoing a review of strategic and financial alternatives.

Company took on an additional $1.3 million in debt implying net cash drained by $6.2 million. This is at a lower rate than the $11.5 million in the previous two quarters, because of the collection of receivables, but is yet fast enough to leave us concerned.

Management is guiding for second quarter to grow by 30%-60% relative to first quarter. This is lower than our belief for a 67% sequential enhancement, but is yet a solid growth rate. This is likely due to the firm closing delayed orders.
We maintain “Sector Underperform” rating while revenue growth may not recover is potential risk to be considered while investing. DragonWave Inc. provides wireless Ethernet equipment used in Internet protocol (IP) networks. The Company designs, develops, markets and sells carrier-grade microwave radio frequency networking equipment that wirelessly transmit broadband voice, video and other data between two points.

About

Karen Jacobson, MS in Financial Analysis, is equity analyst and covers Services, Financial & REIT and Healthcare sectors. Prior joining Broadway Leader, Karen Jacobson worked with Goldman Sachs Research. If you have a great story idea for Karen Jacobson, you can write at [karen.jacobson@broadwayleader.com].

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