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Executives

Russell James Frederick - Chief Finance Officer, Vice President of Finance, Secretary, Director and Member of Disclosure Committee

Peter Allen - Chief Executive Officer, President, Director and Member of Disclosure Committee

Analysts

Scott Penner - TD Securities Equity Research

Robert Young - Canaccord Genuity, Research Division

Maher Yaghi - Desjardins Securities Inc., Research Division

Paul K. McWilliams - Next Inning Technology Research

Kris Thompson - National Bank Financial, Inc., Research Division

DragonWave (DRWI) Q1 2014 Earnings Call July 11, 2013 8:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the DragonWave Inc. First Quarter Fiscal Year 2014 Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the conference over to CFO, Russell Frederick. Sir, you may begin.

Russell James Frederick

Thank you, Shannon, good morning. I would like to welcome you to our First Quarter Fiscal Year 2014 Financial Results Conference Call. With me today is DragonWave Chief Executive Officer, Peter Allen.

As a reminder, today's call is being webcast live on the DragonWave Investor Relations website at www.dragonwaveinc.com. You can access the 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 press release we issued last night, which provide the detailed financial information on DragonWave's first quarter fiscal year 2014 results.

On Slide 2, please. Before we begin, I would like to remind everyone that today's call contains forward-looking statements or information, including statements relating to the changes to the existing operational framework with Nokia Siemens Networks. 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 Risk Factors section of our Annual Information Form dated May 17, 2013, which has been filed both on SEDAR and EDGAR.

Material factors include our expectations regarding our customers' plans and requirements, volume and timing of orders, shipments and revenue recognition and our plans and strategies to balance cash flows and expenses, as well as material factors and assumptions relating to the changes in the operational framework with Nokia Siemens Networks, including the parties' beliefs regarding the industry and markets in which the parties operate and expectations regarding potential synergies and prospects for the business.

On Slide 3, please. I will now review 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 as usual, we plan to finish the call by 9:30 this morning.

I will discuss, first, our first quarter fiscal year 2014 financial results, including an overview of the key terms related to our renewed framework agreement with Nokia Siemens Networks, which we announced in a press release on April 10, 2013. Before getting into the details, I would like to remind everyone that all currency figures are in U.S. dollars and were prepared in accordance with U.S. generally accepted accounting principles unless we specifically state otherwise.

On Slide 4, you can see that total revenue for the first quarter of fiscal year 2014 was $24.5 million compared to $28.3 million in the fourth quarter of fiscal year 2013 and $13 million in the first quarter of fiscal year 2013. In the first quarter, DragonWave had 2 customers who generated more than 10% of total revenue. Revenue from Nokia Siemens Networks was $14 million or 57% of revenue in the quarter, and the other customer generated 12% of total revenue.

On Slide 5, please. Gross margin for the first quarter of fiscal year 2014 was 11% compared to 5% in the fourth quarter of fiscal year 2013 and 32% in the first quarter of fiscal year 2013. While gross margin is 6% higher than last quarter, we will continue to work very hard to improve margins as we move forward.

Total expenses in the first quarter of fiscal year 2014 were $13.4 million compared to $18.5 million in the fourth quarter of fiscal year 2013 and $13.3 million in the first quarter of fiscal year 2013. The major contributor for the decrease in expenses in the quarter was a result of the renewed framework with Nokia Siemens Networks as noted in our press release dated April 10, 2013, and the elimination of the Italian services agreement. During the -- to put this into context, during the first quarter following the acquisition of the Nokia Siemens Networks' microwave transport business, we had expenses of $25 million. The result of $13.4 million of expenses in the first quarter of this fiscal year is more than a 45% reduction in expenses from where we started.

In the first quarter, the loss before amortization of intangible assets and other items was $10.6 million. This compares to a loss of $17 million in the fourth quarter of fiscal year 2013 and $9.2 million in the first quarter of fiscal year 2013. The net loss applicable to shareholders was $6.6 million in the first quarter compared to a net loss of $27.2 million in the fourth quarter of fiscal year 2013 and $12.6 million in the first quarter of fiscal year 2013.

The first quarter fiscal year 2014 results include a onetime gain of $5.3 million. I described the components of this gain in some detail on our full-year earnings call in May, so I will not be redundant here. In summary, you will recall this gain was generated when we announced the renewed framework with NSN in April through a reduction in accounts payable capital asset and lease obligations of $14 million, offset by an $8.7 million termination fee obligation taken on by DragonWave.

Please move to Slide 6, which highlights some of the key balance sheet metrics. Days sales outstanding for the first quarter of fiscal year 2014 was 61 days based on ending balance. This compares to 102 days in the fourth quarter of fiscal year 2013 and 102 days in the first quarter of fiscal year 2013. First quarter DSO performance was impacted by the Nokia Siemens Networks transaction, where payments that were delayed were brought up-to-date.

Inventory at the end of the first quarter stood at $35.3 million compared to $32.7 million at the end of the fourth quarter of fiscal year 2013. Inventory turns in the quarter were 1.9 compared to 2.4 turns in the fourth quarter of fiscal year 2013.

The company ended the first quarter with $23.4 million of cash, cash equivalents and restricted cash compared to $23 million at the end of the fourth quarter of fiscal year 2013.

Our cash position increased by $0.4 million in the first quarter, remembering that $13.8 million came from the collection of the contingent receivable from Nokia Siemens Networks. The uses of cash were a cash adjusted loss of $9.1 million, an increase in working capital of $3.2 million and the purchase of capital assets and software of $0.5 million and $0.6 million from the payments of capital leases. I want to reiterate that the impacts from the changes we announced on April 10, 2013, were not included in the fiscal year 2013 results, but are now reflected in our Q1 FY '14 results.

This concludes my remarks, and I will now turn it over to Peter Allen. Peter?

Peter Allen

Thank you, Russell. Good morning, everybody. Thank you for joining us on this call. We reported last quarter on the changes to renew the operating framework of our partnership with Nokia Siemens. As Russell has said, the impact of this has flown into our results this quarter. We reached an agreement with Nokia Siemens to terminate the Italian services agreement effective April 10, 2013, and as expected, there were some transition impacts from this borne in Q1. But the adjustments in Ottawa and Shanghai to address these and ensure that all functions were covered within directly controlled DragonWave resources, have now been put in place. And we believe that most of these impacts would have been contained to Q1, and I believe that these are now behind us and we are able to look firmly forward.

The alignment between the 2 companies now on the approach to sales push for the microwave business is continuing to strengthen the revenue opportunity funnel. And as discussed in our press release, we are seeing 3 network expansions with major existing service provider customers starting in Q2 in each of India, Southeast Asia and Africa. Additionally, our joint venture in India is experiencing intensified discussions in respect of an important procurement evaluation that is underway.

SoftBank have completed the $21.6 billion acquisition of 78% of Sprint. And in parallel, Sprint have completed the acquisition of the shares of Clearwire that they did not already own. The CEO of SoftBank said this week that SoftBank plans to invest $16 billion in Sprint's network over the next 2 years. This industry development says to me that this is a very -- this industry development says to me that this very strong investment in mobile broadband behind substantial spectrum assets will have broad market implications. And this vibrant environment will, I believe, bring a strong opportunity and one that is aligned with DragonWave's product development focus. This is a market we have done well in, in the past, and we welcome these developments.

Another area of leadership focus is the important area of wireless backhaul for outdoor small cell networks. This high-growth area of the market reflects that the anticipated traffic growth would outpace the spectrum available and will inevitably result in the need to reduce or split cells to maintain and extend a strong mobile broadband user customer experience. As we have seen before, there are many potential tools in the service provider toolkit. But as before, we expect that operators will want high-capacity, spectrum-assured, low-latency microwave as the workhorse for these networks as operators look to cost-effectively increase density in their network.

Of course, we are delighted to add our product line to the Cisco Small Cell Wireless Backhaul Ecosystem. These products provide line-of-sight and non-line-of-sight solutions, utilizing between 2 and 80 gigahertz licensed and unlicensed backhaul spectrum and offering bandwidth from 100 megabits to greater than 1 gigabit of full duplex capacity. These products are optimized for 3G and LTE small cell developments, but with capabilities that include low delay and SynchE, as well as 1588 compatibility.

The combined solution provides end-to-end outdoor small cell backhaul, addressing scalability, zero-touch provisioning, flexibility, manageability, end-to-end quality of service, predictable and reliable operation, network synchronization and simplicity in scaling for growth. In addition, the solution provides low total cost of ownership, low-impact form factors deployable at street level and a proven and deployed offering built on Cisco's Metro Ethernet Forum-certified solution.

We are also pleased to be involved in a pilot development of small cell wireless backhaul in the network of a major Asian service provider, whose small cell base station deployment is already underway. We continue to focus on opportunities for revenue growth by maximizing the effectiveness of the channel partnership with Nokia Siemens, as well as maintaining and expanding our direct relationships, particularly in the United States and India. Our integration and restructuring activities have resulted in a 46% reduction in operating expenses compared to the second quarter of last year. We continue to address areas of further benefit and expect that some streamlining of our supply chain processes will yield both improved market responsiveness and further cost reduction starting early in Q3. As I have said before, through the combination of the cost base realignment and strong focus on funnel development, we are focused on the journey to reach our cash flow breakeven point in a couple of quarters.

That concludes my prepared remarks, and I'd like to turn the call over to the operator to initiate the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Scott Penner of TD Securities.

Scott Penner - TD Securities Equity Research

Just -- guys, maybe to start with the gross margin. Last quarter you alluded to kind of getting back to the 16%-ish by Q2. The MD&A this quarter seems to detail that the pressures could continue for another couple of quarters. So I just wonder what the near-term targets are for gross margin?

Russell James Frederick

Scott, it's Russell. So we haven't -- we're not going to share targets, Scott, but what we are committed to do is work hard on improving at every quarter. I think there is a couple of more quarters of work there. And so I think that's probably as much that I can say right now. But as you might imagine, it's a key area of focus for management.

Scott Penner - TD Securities Equity Research

Peter talked about some of the supply chain improvements. Is one of the key elements of getting that gross margin up just the mix of business you're doing direct versus through the NSN channel?

Peter Allen

Yes, of course. Every time that you participate with the channel and get the benefit of their broad channel presence and investment in channel coverage, which is vast and very wide, you have to share the market margin. So it brings us good leverage, because they cover more deeply and more widely the market than we can with our resources. And so yes, there is a margin sharing there that does -- doesn't go on when you address a customer directly, but then, you have some more operating expense when you address a customer directly. What I was talking about with the supply chain is, as our business shifts to become much more global, as I talked about, if you were on last quarter's call, we have a much more global business now, and business that used to be very North American-centric. And on average, a lot of our revenue now comes from the Middle East, from India and points east. And so adjusting our supply chain logistics to reflect that will have some benefit, both in terms of the lead times into those markets and secondly, the cost of moving our products around the world. And so what I was referring to in my prepared remarks is that some of those areas are our next area of focus for improving the cost performance of the business, and I would expect some of those to flow -- start to flow into our results in Q3.

Scott Penner - TD Securities Equity Research

Okay. The Cisco ecosystem announcement is obviously, essentially, a very exciting one. What are some of the -- I guess, the milestones that we, from the outside, can look at to know along the way that this partnership is working? Or this is just here in the quarterly updates or are there things that we can look for as indications?

Peter Allen

Well, I think the most important indication that we're all looking for is the operators identifying the need for the -- the need for which this is a solution. The reason that small cells are required is, as capacity grows in the network, the existing macro cell environment won't be able to serve those needs. And so the operator has to address that by increasing the densification of coverage in his network. To say it simply, take a cell that is maybe a mile wide and split it into 4 cells. Now to do that, they need to be able -- their business case requires them to do it cost-effectively with the minimum cost. So they don't want to build 4 additional macro cell tower-based cell sites. And so the arrival of the idea of small cells, where lower power, shorter range, lighter, more easily deployable base stations could be placed on structures -- alternate structures, so as the buildings, lamppost, advertising holdings [ph], whatever. But then, of course, the challenge becomes how do you backhaul from those new alternate locations, which is where wireless backhaul comes in as an important enabler for that market. So this is understood to be a high-growth area. But the trigger, I think, for this market is when the operators recognize that their networks need that densification to be able to continue to support a good wireless mobile broadband experience in areas of high teledensity. And already, we're starting to see major carriers issue RFXs in this area. So that's the first leading signal, I would say. But when they start to talk about the need to deploy small cells, that's when we need to be ready with the right product in combination with our partners, and Cisco is one of our partners.

Operator

[Operator Instructions] Our next question is from Robert Young of Canaccord Genuity.

Robert Young - Canaccord Genuity, Research Division

I wanted to ask, first question I wanted to ask is about the line of credit you have, the Comerica facility. I think last quarter you talked about -- seemed like it was difficult to increase that, given its asset-based, it tops at a $20 million, if I understand, you're at $15 million now. I was wondering if you could talk about what levers you have to unlock that extra $5 million?

Russell James Frederick

Yes, so -- Rob, thanks for your question. It's an asset-based line, Rob, so it flexes with accounts receivable and inventory. So at this time, $15 million, because we're at -- those asset classes that I just mentioned are at a certain level, we can access $15 million. If those asset classes go up, we can take access of the other $5 million. So that's basically how it works.

Robert Young - Canaccord Genuity, Research Division

Okay, okay. The -- I was wondering if you can talk about just the general industry, some of your peers have been talking about delays and some reluctance from customers. And on the other hand, you've -- in your press release, you talked a lot -- about a lot of potential near-term opportunities. I was wondering if you could talk about where your confidence is on some of these opportunities happening in Q2 and Q3 versus getting pushed out like some of the peers are talking?

Peter Allen

Well, let me first talk about the industry's development of $16 billion of investment going into the North American carrier market in Sprint by SoftBank. I mean, that's obviously going to generate strong dynamics for the network infrastructure providers to be able to support that network. And I think that would propel Sprint into another level of service delivery that, in my judgment, will have to be matched by other North American carriers. $16 billion is a lot of investment. And I think it -- there's no point investing in companies with a lot of spectrum if you're not prepared to put the network investment behind that spectrum. And SoftBank, in their statement of $16 billion, is clearly ready to do that. I think, around the world, I would say, certainly, we saw in our Q1 results some of the factors that others have talked about in terms of delays. This can happen any time with a customer network for very many reasons. But through the work that we've been doing on building the revenue opportunity, I'm certainly seeing that, particularly with the 3 networks that I referred to, that those are going to move in Q2, and I'm sure of that.

Robert Young - Canaccord Genuity, Research Division

Okay. Since you mentioned SoftBank, Sprint, Clearwire, is there anything you can share about timing and benefit from DragonWave's point of view? I think everyone understands SoftBank is an aggressive carrier that might lead into the U.S. market causing other carriers to spend. What do you think the timing on Sprint and Clearwire may be?

Peter Allen

I mean -- again, the public statement of SoftBank and what they said about the $16 billion investment was it would cover the next 2 years, and then -- so an average of $8 billion, if you want to say that, per year and then, drop down to $6 billion thereafter. So they certainly expect to be spending the money over that time period. What I would tell you is, I mean, because of the hiatus, if you wish, that was in place because of the competitive bid from DISH, the SoftBank acquisition has been delayed. But during that period, I would be very surprised if the people within Sprint and Clearwire have not been preparing, doing the network planning, the market development planning, ready to move on that investment opportunity at the earliest opportunity. I think it is true that in both Clearwire and Sprint, their approaches in the past have been somewhat limited by the strength of their balance sheet. But I don't think it should be -- in any sense, these guys wouldn't have known what to do if they had, had the opportunity to have a stronger balance sheet. And now they have that, I think you'll be -- I'd be surprised if they don't move very, very fast.

Robert Young - Canaccord Genuity, Research Division

Okay. So some pent-up demand there could happen faster than perhaps people expect?

Peter Allen

Yes. I mean, if you look at the -- when Clearwire were rolling out, they rolled out into new markets very, very quickly. But their ability to go beyond the footprint that they had was compromised. I believe that the Sprint approach was somewhat around leased infrastructure versus owned infrastructure was, in part, because of their balance sheet. And I think, we can see -- I would imagine that we would be seeing both the opportunity to have more owned infrastructure within existing markets and new markets as well.

Robert Young - Canaccord Genuity, Research Division

One last question for me, if I could. If you could -- in the past, you've given us some guideposts around what you think the cash burn might be in the coming quarter and the current quarter, I mean. Is there anything you can share, what you think it might be this quarter?

Peter Allen

I'll stay consistent with what I've said in the past, I think $13 million to $15 million.

Operator

Our next question is from Maher Yaghi of Desjardins.

Maher Yaghi - Desjardins Securities Inc., Research Division

I wanted to ask you about these opportunities you mentioned in India, in Asia and Africa. Can you give us some guideposts into how much they could represent?

Peter Allen

I would say that they are all significant. In the case of, I would say, all of them, they represent both expansion within existing areas that have already been deployed, regions that have been deployed. So they're in-region expansion. So just kind of building on networks that we've already supplied previously. But in the case of at least 2 of them, I would say, that another piece of this is building out new territory for the first time. So pretty important buildouts with existing customers. And I think the next phase, as I said, will start in Q2. But I don't think that's, in any of them, will be the end of their network expansion. So I think it will go on into subsequent quarters, but that's a matter for later. Right now the next phase is -- will start in Q2.

Maher Yaghi - Desjardins Securities Inc., Research Division

And are these contracts fine and now you're working on the delivery of the product? So do you have visibility into future quarter orders numbers right now or these are contracts you're trying to secure?

Peter Allen

In terms of the sales, where they are in the sales process, they're all a little bit different. But in the case of 2 of them, yes, we're into the part where we have orders and are receiving orders and are planning the implementation of those orders. In the case of others, the orders are coming into our -- starting to come into our channel partner, and then, of course, that takes a little while to flow into us. So in all cases, either we have orders or the orders are very close.

Maher Yaghi - Desjardins Securities Inc., Research Division

Okay. And there was a question earlier about gross margin. I wanted to ask you about operating profits. You did lower your G&A and R&D quite a bit during the quarter. Can you talk a little bit about what additional cost-cutting efforts you can implement and -- below the gross margin number?

Peter Allen

Yes. So as I said in my prepared remarks, the next -- we are looking at many areas of cost in the business. But the most significant area that has -- of opportunity that has the most focus is this realignment of our supply chain to recognize -- and our logistics model, to recognize that our logistics model isn't now streamlined to where our geographical revenue profile is. And we're going to make adjustments to reflect that. Through that process of making those adjustments, we believe we will get both improved responsiveness to the market. In other words, we could offer shorter lead times to the market. And importantly, for the question you just asked, we expect to see then the biggest -- of all the things we're looking at, this represents the biggest opportunity to improve our cost performance.

Maher Yaghi - Desjardins Securities Inc., Research Division

Can you mention the or discuss the timeframe we're talking about here?

Peter Allen

Yes. What I said in my remarks is I expect that to flow into our results in the early part of Q3.

Maher Yaghi - Desjardins Securities Inc., Research Division

Okay. And just one final question. When you look at the business right now, look at technology, can you discuss a bit about how you're positioned on the technology side? Are there changes going on in the marketplace that can provide additional opportunities or risks to your business?

Peter Allen

Absolutely. So I think there are 2 kind of fundamental drivers that I would discuss. As people roll out more capable mobile broadband solutions using LTE, 4G technology, the pressure comes on for more and more bandwidth. And so the first area of technology leadership needs to be the ability to deliver more bandwidth absolutely and more bandwidth in terms of improved cost per bit delivered. This is an area, I think, that DragonWave has always focused on and always had a leadership position in. The most recent manifestation, I think, of that leadership has been our ability to be the first vendor to deliver 2048 QAM-based products and our capabilities around bulk compression with our Bandwidth Accelerator features. So technology area, number one, is more capacity, so that as more capacity is required by 4G base stations, we have a bigger engine available to backhaul them. The second area, I think, is small cells. As I talked about in my prepared remarks, whatever we do on the base station side and on the backhaul side, order predictions are saying that, that will be insufficient to close the gap to the demand, the rate at which the mobile broadband experience is growing and shifting people's -- increasing people's use of Internet and shifting their use from landline networks to mobile networks. So the demand is outstripping capacity. The response to that by the operators will be that the -- in the areas where they are experiencing that, in order to maintain the customer experience, they will have to increase the coverage. They have many tools in their toolkit that they will look at. They will look at license technology, they will look at point -- motor point technology, they will look at carrier WiFi. But ultimately, where we believe that the workhorse for this industry will be, will have to be product that has the same performance attributes as the backhaul for the macro cell, because the traffic requirement is the same one. And so making sure that we can deliver a range of products to support the challenging enabler of wireless backhaul for small cell, we think we are, again, well-positioned for that because of our strong legacy in all-outdoor product. It's going to be very unlikely that there's going to be a telecom shareholder [ph], happen to be behind that advertising holding [ph] where that small cell base station is going to be deployed. So all-outdoor product is going to be necessary, and we think high-capacity, low-latency capabilities will be similarly required. And so we are developing a range of products. They're already there. Some of them will, of course, need to be improved in terms of cost and size and weight. But we already have a range of products and are already getting the opportunity to deploy those in major -- at least in a pilot form, in a major Asian small cell deployment. So I'm feeling that, that -- those 2 areas, which I think are the highest growth areas for wireless backhaul in the forward market, are areas that DragonWave's historical and current products, say, is well suited for.

Operator

Our next question is from Paul McWilliams of Next Inning Technology Research.

Paul K. McWilliams - Next Inning Technology Research

In the Cisco deal, do you have any deployments that are underway with Cisco as a partner in small cell?

Peter Allen

Not at this stage. The one that I talked about in Asia is through another partner.

Paul K. McWilliams - Next Inning Technology Research

Okay. Could you offer a little bit more color on India and comment as to whether some of that business will be with your partner, NSN?

Peter Allen

Can I just go back on the small cell one for a moment and amplify my comment, Paul? So we are already bidding opportunities with Cisco. Sorry, could you repeat the next question, I was -- I missed it.

Paul K. McWilliams - Next Inning Technology Research

Okay. On India, I just like to get a little bit more color on that, and I'd like to know if the activity that you have there that you anticipate accelerating or getting going in this current quarter is with your partner, NSN?

Peter Allen

We have a lot of activity in India, some of which is with NSN and some of it is addressed directly. When I talked about the 3 major existing service provider customers, 1 of which was in India, that 1 is through NSN.

Paul K. McWilliams - Next Inning Technology Research

Okay. Excellent. I noticed that inventory stepped up a little bit this quarter and was wondering, is that in anticipation of some fairly significant near-term revenue growth?

Peter Allen

Yes. Paul, I would reference my remark to the earlier question about some delays. Yes, you can experience some delays and I think some of -- we did experience some delays in the first quarter, and that reflected in higher inventories, but it does place us, I think, very well to serve these -- particularly these 3 and other customer deployments that are going to start in Q2.

Paul K. McWilliams - Next Inning Technology Research

Okay. One last question, it's fairly general. It has to do with C-RAN or Cloud RAN, are you seeing that as a driver for your applications?

Peter Allen

I don't think I can be too specific about that. To the extent that, that is synergistic with small cell, I would say not yet, but it will be.

Operator

Our next question is from Kris Thompson of National Bank.

Kris Thompson - National Bank Financial, Inc., Research Division

Russell, just if we could talk about the cash for a second. Last quarter, you suggested that $12 million burn and this quarter, you had positive cash flow, which is great to see. Looks like you had some working capital boosting your cash for this quarter. I just want to understand, you've done managing your working capital as best as you can, so you will see some cash burn. And the reason I'm asking is because you have about $24 million cash in the balance sheet, if you're going to burn $12 million to $15 million, I just need to understand how close that cash balance is going to get drawn, because I do believe there's a $8 billion or $9 billion Nokia Siemens liability that you need to repay over 2014. So if you could just kind of talk about those factors and also, how that NSN liability is going to get repaid and where I see that on the balance sheet, that would be helpful?

Russell James Frederick

Yes. So boy, there's a lot in that question. So let me say this. First of all, for the cash profile right now we kind of ended up on cash the same or a little better than we did in Q4, and that was really on the back of the acceleration of payments from NSN. So I think in renegotiating that arrangement with NSN, we saw good support from NSN in terms of being sensitive on what we needed to do to grow the business and continue to have the cash to run our business. So as Q2 plays out, Kris, there will be burn, and we are expecting some growth in the revenue that Peter alluded to. And so there may be access to more cash from the credit line. But beyond that, of course, we keep our options open as far as accessing new cash sources. As far as the NSN liability, what we have said before, and continues to be true, is that we expect that -- so once those claims start for those termination fees, we would expect them to take place over the period of about a year. And so -- but they haven't started yet, so the profile of that right now, Chris, we don't know, but we haven't seen any yet. So really not expecting any pressure from that this quarter, but then, we'll have to wait and see what happens in the coming quarters.

Kris Thompson - National Bank Financial, Inc., Research Division

Okay. That's really helpful, Russell. And that NSN liability, is there any possibility that, that will be reduced? Or do you have to pay that?

Peter Allen

Let me speak to that. I think the service agreement cancellation fees are -- there's variability within that. And so, certainly, it is feasible that the ultimate liability could be lower.

Kris Thompson - National Bank Financial, Inc., Research Division

Okay. That's great. Russell, just -- I know you don't want to give gross margin target, but I'm just a bit confused, if you think your gross margin's going to trend lower for the next couple of quarters before it improves? Or do you think it's going to improve a little bit over each of the next quarters? Can you clarify that, if possible?

Russell James Frederick

Yes. So no, our focus and our energy is to improve the margins each quarter, Kris, starting this quarter. I was just reluctant to say a number that people are going to latch onto, because as you know, there's a lot of dynamics that goes into gross margins.

Kris Thompson - National Bank Financial, Inc., Research Division

Yes. No problem, I got it. And if you can, Peter or Russell, I mean, what range of revenue do you think you need to achieve that breakeven in the next couple of quarters?

Peter Allen

Yes, again, I'm not going to give specific numbers, but we believe through the combination of the development of the funnel of revenue opportunities, together with our integration and restructuring activities and the improvement in some of our processes, like the supply chain, we think that cash flow breakeven is still possible. But as we go through the journey, if we need to make course corrections, we will continue to make them. And I wouldn't set in stone any particular path at this point.

Kris Thompson - National Bank Financial, Inc., Research Division

Fair enough. And just my last one. The NSN revenue has obviously been disappointing, trending lower every quarter since close. Now Nokia is acquiring the 50% interest from Siemens. Is that going to be a further distraction until they get that closed? Do you think there could be some more kind of headwinds with NSN revenue in the near term?

Peter Allen

I don't see any reason to believe that the Nokia purchase of the Siemens interest will have an operating effect on Nokia Siemens.

Operator

I'm showing no further questions at this time. I would like to turn the conference over to Peter Allen for closing remarks.

Peter Allen

Thank you. Thank you, everybody, for joining us today. Look forward to seeing some of you as we come out and talk about our results over the next kind of couple of weeks, and what I feel is the green shoots of spring for DragonWave. Thank you very much.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.

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