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DragonWave, Inc. (NASDAQ:DRWI)

Q4 2014 Earnings Conference Call

May 15, 2014 8:30 AM ET

Executives

John Lawlor – IR

Russell Frederick – VP, Finance and CFO

Peter Allen – President and CEO

Analysts

Scott Penner – TD Securities

Daniel Rosenberg – Desjardins Bank

Robert Young – Canaccord Genuity

Paul McWilliams – Next Inning

Operator

Good morning, ladies and gentlemen. Welcome to the Fourth 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 call over to your host, John Lawlor. Sir, you may begin.

John Lawlor

Thank you, Andrew, and good morning everyone. I would like to welcome you to our Fourth Quarter Fiscal Year 2014 Financial Results Conference Call. With me today are DragonWave’s Chief Executive Officer, Peter Allen and 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 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’ve had an opportunity to read the press release we issued last night, which provided detailed financial information on DragonWave’s fourth quarter and full fiscal year 2014 results.

Slide 2, please. Before we begin, I would like to remind everyone that today’s call contains forward-looking statements within the meaning of applicable securities laws. Forward-looking statements include statements as to DragonWave’s growth opportunities and the potential benefits of and demand for DragonWave’s products, our expectations regarding Q1 FY 2015 revenues and the funnel for both direct sales and sales through the Nokia channel. Our view of the relative position of DragonWave’s product compared to competitive offerings in the industry, the timing of orders and deliveries, revenues and expenses constraints within the supply chain.

These statements are subject to certain risks, assumptions and uncertainties. We’re cautioned not to place undue reliance on such statements. DragonWave’s actual results performance, achievements and developments may differ materially from the results, performance, achievements or developments expressed or implied by such statements.

Forward-looking statements are provided to assist external stakeholders in understanding DragonWave expectations as of the date of this call and may not be appropriate for other purposes.

Material risks and uncertainties relating to our business are described under the heading Risks and Uncertainties in the company’s MD&A dated May 14, 2014, and in the company’s Annual Information Form and other public documents filed by DragonWave with Canadian and United States securities regulatory authorities, which are available at www.sedar.com and www.sec.gov, respectively.

DragonWave assumes no obligation to update or revise any forward-looking statements, whether as a result of new information future events or otherwise except as expressly required by law.

Slide 3, please. I would now like to turn the call over to DragonWave’s Chief Financial Officer, Russell Frederick. Russell?

Russell Frederick

Thank you, John. Good morning everybody. I would now like to discuss our fourth quarter and full fiscal year 2014 financial results and then Peter will provide a business update and lead a discussion. Following Peter’s remarks, we will open the call for questions. We planned to finish the call by 9.30 this morning.

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 the U.S. generally accepted accounting principles unless we specifically state otherwise.

On slide 4, you can see that total revenues for the fourth quarter of fiscal year 2014 was $17.9 million, compared to $22.2 million in the third quarter of fiscal year 2014 and $28.3 million in the fourth quarter of fiscal year 2013. In the fourth quarter DragonWave had one customer that generated more than 10% of total revenue. Revenue from the Nokia channel was $12.1 million or 68% of revenue in the quarter. The direct business was $5.7 million or 32% of revenue in the quarter.

Slide 5, please. Gross margin for the fourth quarter of fiscal year 2014 was 14.5%, compared to 11.1% in the third quarter and 5.3% in the fourth quarter of fiscal year 2013. The gross margin improvement quarter-to-quarter was mainly a result of improved product cost coming from our contract manufacturers. We expect that gross margin in the first quarter of fiscal year 2015 will see another improvement. The gross margin for the full fiscal year 2014 was 11.8% compared to [7%] [ph] for fiscal year 2013.

Total expenses in the fourth quarter of fiscal year 2014 were $11.8 million compared to $12.6 million in the third quarter and $18.5 million in the fourth quarter of fiscal year 2013. The reduction was mainly due to lower stock cost as well as lower depreciation expense.

In the fourth quarter the loss before amortization of intangible assets and other items was $9.2 million, compared to a loss of $10.2 million in the third quarter and $17 million in the fourth quarter of fiscal year 2013. The net and comprehensive loss applicable to shareholders was $11.6 million in the fourth quarter compared to a net loss of $5.5 million in the third quarter of fiscal year 2014 and $27.2 million in the fourth quarter of fiscal year 2013.

Please move to slide 6, which highlights some of the key balance sheet metrics. Day sales outstanding for the fourth quarter of fiscal year 2014 was 81 days based on ending balance. This compares to 57 days in the third quarter of 2014 and a 102 days in the fourth quarter of fiscal year 2013.

Inventory at the end of the fourth quarter stood at $30.4 million compared to $31.6 million at the end of the third quarter. Inventory turns in the fourth quarter were 1.9 turns compared to 1.8 turns in the third quarter.

The company ended the fourth quarter with $19 million of cash compared to $23.5 million at the end of the third quarter and $23 million at the end of the fourth quarter of fiscal year 2013.

Our cash position decreased by $4.6 million of which $8.4 million came from the cash adjusted loss and $0.7 million came from purchase of capital assets and payment of capital leases. Changes in non-working capital contributed $4.7 million of cash.

You will see that we noted that we’ve reached one of our bank covenants during the fourth quarter of fiscal year 2014. We obtained a wavier as well as adjusted the covenants going forward for the remainder of the credit facility, which expires in June 2016. We continue to have excellent support from our banks and based on the growth we are seeing on the first quarter, we expect to have access to more credit to fund working capital this quarter.

Slide 7, please. This concludes my remarks and I will now turn it over to Peter Allen. Peter?

Peter Allen

Thank you, Russell and good morning everyone. Thank you for joining us on our call. Firstly, I’d like to welcome John Lawlor back to our conference calls. It’s great to have you back John. Over recent quarters I have described that we believe our revenues would positively inflamed. Although this is been later than we expected, I’m pleased to be able to report that this is not happening.

As we integrated in our press release yesterday evening, these positive dynamics are being felt in our bookings and shipments. For the first quarter ends with the end of this current month and with the strong demand that we have seen, I can already anticipate that we will see sequential Q1 revenue growth of approximately 50%. I’m pleased that we will see growth through both Nokia and in our direct business in Q1.

In recent calls, I’ve talked about multiple CapEx cycles starting around the world. Since then there has been a major spectrum auction in India with operator spending more than $9 billion on these airwaves.

Following this auction Vodafone, Bharti and Idea has all announced plans to launch 4G services. In general DragonWave has never been involved in more bids and trials than we are currently involved with [indiscernible] of India. We recently expanded our activities in India and opened a service and repair center in Delhi.

The center will be supported by DragonWave’s joint venture, DragonWave HFCL and we’ll provide full in-country repair service and support for DragonWave in tie up with our portfolio.

The new center announced DragonWave to better service its Indian customers and significantly reduce turnaround times by avoiding delays and associated with import, export regulations for repairs made out of country.

Another example of momentum comes in Pakistan with the completion of the longer waited 3G and 4G spectrum auction. Until now Pakistan has been the only major country in the region that does not offer 3G services. Pakistan is a country where we have had success in the past and we are hopeful that we will be able to participate in the future of this positive development.

Now Q1 you’ve seen strong activity in Asia, where in the first quarter alone we expect to record revenues that are more than 75% of our full fiscal year 2014 level in this region. Strong deployments in two Indonesian carriers have provided this performance. This performance is also being seen in Europe and the Middle East.

A Mobile World Congress in Barcelona this year, we announced that we have expanded our product portfolio with the introduction of Harmony Eband. This is a compact lightweight radio that operates in the 70 GHz to 80 GHz spectrum with low-energy consumption. With its integrated switch Harmony Eband delivers a complete all-outdoor solution and delivers the industry’s first uncompressed CPRI transport mode that enables wireless fronthaul.

Harmony Eband’s industry leading performance is demonstrated by operation up to 64 QAM to achieve throughput of 2.6 Gbps. Spectral efficiency is further enhanced by DragonWave’s Bandwidth Accelerator+, which increases capacity up to 4 Gbps. Additionally, it features the DragonWave Reach Extender, leveraging Waveform and Modulation Adaptivity as well as MIMO to extend the radio’s reach to between 3-7 KM with high availability. With an ultra-low delay mode and its CPRI interface, the Harmony Eband radio also supports fronthaul applications.

We also announced the addition of the Harmony Trunk C hybrid trunking microwave radio released to complement our existing high capacity Harmony Trunk microwave product portfolio. Another small form factor radio the Harmony Trunk C is available for either all-outdoor or all-indoor network requirements supporting up to 4 RF carriers in a single outdoor cabinet or indoor shelf.

Harmony Trunk C provides greater trunking options from mobile operators, military and broadcast applications worldwide. Available in STM-1, hybrid or full IP configurations, the Harmony Trunk C shares complete hardware commonality with our existing Harmony Trunk products.

In North America, we expect Q1 revenue to be good through our distribution channels. You would have seen that Sprint has made some leadership changes to their organization, which we think are aimed to deliver on the major network investments announced previously.

We continue to believe that our leadership in high-capacity packet microwave solutions will commit us to participate in this major network. I have spoken before about our leadership focus in the important area of wireless backhaul for outdoor small cell networks. And I reported last quarter that our pilot deployment of what – of small cell wireless backhaul with the leading Asian service provider, who is already deploying small cell base stations had gone very well.

I’m extremely pleased to say that we have now recorded our first orders for this deployment and in fact we have just received a second and bigger order, so this is starting to accelerate.

We’ve talked before about the uncertainties caused by the dynamics of network deployments that make unsafe generally provide revenue guidance. And this remains the case, so that I can indicate that our funnel for Q2 looks stronger for that quarter than our funnel for Q1 looked the equivalent stage for that quarter.

Finally, I am pleased that we took a step forward in terms of improving our gross margins and we are continuing to work hard for an improved performance in this area. Similarly we have been able to continue to control our expenses at a time when the demands on the organization at the high time, because of the many global customer engagements we are involved.

Thank you. And I will now turn the call over to the operator to start the question-and-answer session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from the line of Scott Penner from TD Securities. Your line is open sir.

Scott Penner – TD Securities

Thank you. Just maybe first of all that kind of to get setback, because I’m going to just talk again about the March 2 breakeven which you’ve commented on the past and obviously the delay that you would also spoken too in the past. But sort of update us now based on the funnel that you’ve talked and the gross margins that you see as to what – what the reasonable timeframe we should think of to get back to kind of the cash breakeven level?

Russell Frederick

Hi Scott its Russell. Let me start by saying we’re very pleased Scott with the progress we are making on the revenue side and on the gross margin side. So obviously, those are the key two contributors to that March that you described. Still a long way to go, so as far as a cash flow breakeven from operations, I would think, that would be this year, but I would be reluctant to say more than that at this time. But there is good progress being made toward that.

Peter Allen

I think reflected at this, so I think, what we’re trying to communicate here is we think we’ve seen a significant inflection in the demand profile and the revenue profile that the business we experienced. Q4 was disappointing some of the deferrals that we saw in Q4 had come into Q1, but many have gone, we’re pushing out beyond Q1. And the demand we’re seeing in Q1 is more – some of it is benefited from Q4, but much of it is instantaneous and we will certainly go out of Q1 with a stronger order book than we had coming into Q1.

So there certainly has been a significant inflection and as I said in my prepared remarks, the funnel is looking better at this stage for Q2 within Q1 was looking at the equivalent stage. So, we’ve gotten much more now to work with and a many of the business development activities, the channel development activity from frankly the value of our products a time when major CapEx cycles are underway on many places around the world putting a lot of pressure on operators to upgrade their networks. When they do that they need, a lot of capacity and they need to deliver it in a very spectrally efficient manner, which is exactly what we do.

So, as I say I think with a lot more to work with, we continue to be mindful of the risks and uncertainties associated with network deployments. But the – just the amount of activity around us is given us cause for much more confidence that we had on this path that lost.

Scott Penner – TD Securities

Is the gross margin targets or expectations to get back to that 20% to 25% is that still the target and should that be what we’re thinking for Q1 or just sort of growth towards that from where we were in Q4?

Peter Allen

I explain to that as Russell said, we will continue to – margins will continue to improve in Q1. We’re certainly working hard that it will not stay there that we will continue to show that our margins will improve. We think that the environment that I described where operators require very spectrally efficiency high-capacity packet microwave solutions is the opportunity for us to use in both, good value and, improve our margins at the same time.

So I think environmentally, the right number for us to be able to drive towards certain levels, interim levels that you described. At the same time, we know this is a very competitive market with many, many players and not always – things are not always quite lenient. But at this end of the market, I’m very hopeful that our strong value propositions will provide.

Scott Penner – TD Securities

Is the Eband product, Peter is the Eband product relevant in a market like Pakistan or is it targeted for other areas?

Peter Allen

Eband its very country specific at this moment, because not all regulators in each country have released Eband spectrum. And so, it may in anyone given country and I’ll give you an example India – India has not yet released Eband spectrum. So Eband products are not a factor there. There which, that the thing that drives an operator to one to use Eband is that just you can get a lot of capacity through that spectrum and secondly, in many of the countries Eband cost of licensing, the backhaul spectrum for Eband is less expensive than traditionally microwave spectrum.

Another driver to – another way to satisfy that same driver is the – the spectral efficiency and high-capacity that we bring to our traditional microwave products with 2048 QAM and our both compression capabilities, we deliver the highest spectral efficiency in the industry. So there will be some, countries and network deployments that wants to take advantage of Eband, there will be some won’t be able to take advantage of Eband or would prefer to take advantage because, we have other reach or environmental reasons. But we want to take advantage of traditional microwave products.

Either way we think we have the – the better portfolio now to serve, I mean a differentiated way, such that, as they face a challenge of stating the network we’ve got solutions, valuable solutions available for them.

Scott Penner – TD Securities

Okay, thanks I appreciate it.

Operator

Thank you. Our next question comes from the line of Maher Yaghi of Desjardins Bank. Your line is open.

Daniel Rosenberg – Desjardins Bank

Hi, thanks for taking my questions. This is Daniel Rosenberg calling on behalf of Maher. I just had a quick question about the revenue, you guys mentioned a 50% increase in the first quarter, I was just wondering how we should think about that for the balance of the year, is it going to be bumpy, do you expected to remain at the higher level or it slowly gradually get to more constant level? Thanks.

Peter Allen

I as I said, the thing that stops us providing guidance is that any of my demand is dependent upon multiple factors that I’m not in control of, which is the availability of size and other equipment that the operator needs to use in concert with our equipment in a network deployment. But what I would show you at the same time and why we made the remarks that we made about the funnel is, the underlying level of demand and opportunities that we are seeing around us is growing. And this stage is greater than for Q2 than it was for Q1.

So it is my expectation that we’re on the path that I’ve indicated previously that, this is a not just a sustainable new level of revenue, but this is one that we will continue to see some growth upon. And certainly there is enough CapEx investment cycles around the world in places that are accessible to us that would give me the confidence, so the underlying demand in the market is there. And now there will continue to be bumps along the way in terms of network deployments, sometimes go slower. But I would probably tell you that I’ve got more customers asking for acceleration than deceleration by now.

Daniel Rosenberg – Desjardins Bank

Okay, thanks. Another question just about the, you mentioned the covenants with that facility, I believe I read that the wavier extends to May 31st, I was just wondering if you could update us on your financial position and how you feel about your financing opportunities or if you’re comfortable as this for now?

Russell Frederick

Thank you, Maher. I’m happy to do that. So we have from had great support from Comerica and Export Development Canada with our credit lines. And of course the way they approach credit lines is that, based on your business plan they set a certain package of covenants. And of course as Peter indicated earlier, it’s taken longer for the inflection point to add. So in that environment we go back to them, and we say look this is what’s going on, but here is the updated business plan, here is the growth that we’re experiencing et cetera and they adjust the covenant.

So this time they simply decided to give a waiver for up to the end of May and then provide the new covenant factors going forward into the middle of 2016. So they’ve been very supportive that way. Now with the revenue growth that we’re seeing that Peter has talked about in Q1, of course the way the credit facility works is, we have access to more credit based on the receivables that will be generated by shipping those additional products. So that part of that feels very good right now, because the financing mechanism that we have put in place for DragonWave is now available to us.

Daniel Rosenberg – Desjardins Bank

Great, thanks very much.

Operator

Thank you. Our next question comes from the line of Robert Young from Canaccord Genuity. Your line is open.

Robert Young – Canaccord Genuity

Hi, good morning.

Peter Allen

Good morning, how are you Robert?

Robert Young – Canaccord Genuity

The cash $19 million at the end of February, could you maybe update us on where the cash position is now?

Peter Allen

Well what I would do is – what I’ve done in other calls Rob and say for this quarter, we would expect a usage probably in the spending million dollar range. And that’s a little higher than what we used last quarter, but what I would tell you is that the mix of usage will have changed. So that the operating performance is improving, so we’ll have less cash consumption from the operation, but probably a bit more consumption on the working capital side.

Robert Young – Canaccord Genuity

Okay. And the last question on the covenants, the one covenant that was there is the requirement to keep $10 million in with Comerica in a bank account, is there any flexibility on that or did that covenant remain?

Russell Frederick

That covenant remains and, that was not, obviously that’s not the covenant that we are talking about, because we had $19 million of cash. And but that’s still in place as we go forward.

Robert Young – Canaccord Genuity

Okay. And I guess, so what I’m heading towards is the balance, if the $7 million of burn is the expectation and $19 million in cash on a balance sheet if you have to remain whole intent lease of $2 million in flexibility is that for your expecting revenue growth and expansion of accounts receivable to unlock maybe a bit more in that line and reduce the cash burn in the next quarter, is that kind of the way of thinking it?

Russell Frederick

That’s a good way to say it.

Robert Young – Canaccord Genuity

Okay. And is there any further opportunity for OpEx reduction to think about or have you done all of that already?

Russell Frederick

Yes. So I think, if you look at last year Rob, the average OpEx was probably around 12.5, but we did nudge that down pretty significant in Q4. But the way I’m thinking about our expenses is kind of if you said look, the run rate overtime at this stage is 12 to 12.5 and we’re going to continue to get efficiencies where we can. But with the revenue growth there would be some upward pressure on expenses. So hopefully we’re not going to see an increase in expenses given those dynamics, try would say thinking about them in the 12 to 12.5 range for now is probably the right way to approach it.

Robert Young – Canaccord Genuity

Okay, great. And then just a couple of more questions, first on the gross margin it’s still better than, I mean I would have expected given the, where the top-line was and the mix of NSN revenue, so I was wondering if there – was there any other factor beside the contract manufacturing reductions, it seems that though the gross margin was still pretty good to gone up amount in quarter-over-quarter, one of the factors where they are there?

Russell Frederick

So, there is actually a number – a whole lot of factors that go into the gross margin Rob as you know and there is puts and takes from the contract manufacturing point of view that’s really the main driver, because that’s the main element of gross margin. And so a lot of work with them, we’re now enjoying better cost than we had in the past. And we’re anticipating more gross margin expansion this quarter, and I think Peter will get a little sense of that as well.

Peter Allen

Can I add a couple of comments to your last two questions Rob first I’ll take the second one first if I may. On the margin side I think we have done an awful lot of work on the cost side, but as I indicated, the environment is strong with the notable CapEx cycles that is going on around the world. And that is where I feel that our product portfolio is at its strongest and where we enjoy a better mix of margin.

So, some of our improvement is going to be from product mix or margin mix if you want to think that way. But, well as at the same time, continue to be very, very focused on making sure we’ve got the right cost profile in our products. The other point I wanted to make coming back at the expense levels, I really cannot emphasize strongly enough how much activity that we’re involved with globally and with major carriers globally.

And we’re involved as I said in my prepared remarks with more trials and bids we’ve ever seen here before at DragonWave. And so that’s gives us great cause for belief that we are able to continue to grow revenue following this inflection, but it also means that we created to be probably unsafe to try to avoid engaging in that global activity and that global growth for short-term expense cost we don’t think that is the right behavior for the long-term sustainability of the company.

Robert Young – Canaccord Genuity

Okay, and maybe just one last question is, just on the NSN channel the house there, Rajeev Suri is now looks like he is the person in-charge and so now that’s clarified, what does that mean for DragonWave going forward?

Peter Allen

Well firstly they are no longer NSN, they are Nokia. And I’m pleased to see that Rajeev was appointed as the Chief Executive Officer for him my congratulations. And I think it’s a testament to the good work that he has done with the network side of their business. There will be some organization changes and of course we will be striving to establish the strong relationship with, whoever is placed in new positions that we’ve had with the people previously. But I think, other than, we’ve got some new people to meet, I don’t think it has any significant change to our relationship.

I was at the one of their sales conferences last week in Kuala Lumpur, where we had the opportunity to be with many, many, many of their customer teams and I will tell you it was a very collaborative environment and they know us, but now we know them better. So that was got us into some very fruitful dialogues last week. So I’m not anticipating any change from the combination, all the consolidation within Nokia.

Robert Young – Canaccord Genuity

Okay, thanks a lot good luck guys.

Peter Allen

Thank you, Rob.

Operator

Thank you. Our next question comes from the line of Paul McWilliams from Next Inning. Your line is open.

Paul McWilliams – Next Inning

Hi, good morning, thank you for taking my questions. And John welcome back, it’s good to have you back.

John Lawlor

Thank you, Paul.

Paul McWilliams – Next Inning

Just two quick ones, just trying to read between the lines what you are saying it would appear to me that you are anticipating materially faster growth of your direct product line versus an agreed Nokia product line. Am I reading that correctly, I’m talking for the full fiscal year?

Peter Allen

I don’t that I would say quite starkly as that, Paul. I think there is even in the first quarter we are seeing good growth on in both aspects of the business; good growth for Nokia and good growth in our direct business. I think the power of the model that we have with Nokia as the CapEx cycle starts around the world, we are able to address it more of them than we would have done had we just been trying to do without direct business model. And certainly, Nokia have a greater focus on driving revenue through all aspects of their mobile broadband portfolio of which microwave is a part and trying to get – maximize the revenue growth with their partners.

So that’s a very strong focus for them and I expect that because of that with a very wide and capable sales channels where we will see further good growth beyond Q1. At the same time, there are some major carriers around the world, some not so far from here where we do expect that they wanted to continue to do business directly and we expect to see very significant growth with them as well. At this stage, I wouldn’t want to handicap, which side will outcompete the other. But I’m just happy to have both sides firing up a bit more strongly.

Paul McWilliams – Next Inning

So as a stockholder I’m too. What would you say the – about the attach rate trends with Nokia’s installation that are using microwave, or is that trend of the attach rate where you are winning is that improving or is it declining?

Peter Allen

Yes. Again, I think there are different purchasing behaviors by the operators. Some operators want a full turnkey proposal that include all of the equipment necessary for their expansion of or modernization of their mobile broadband network and that would include PlayStation, microwave, IP core equipment and installation commission services and care.

So some operators want to receive proposals for the entire turnkey solution. Some operators pass all that up into different competitions and give some preference, some weight into towards the fact that they have less vendors to deal with, if they select vendors that are common with other parts of their network, so they still want to run full competitions.

I think the trend generally is, as solutions become tighter and more coordinated and more integrated. There are stronger opportunities to find our solutions and the other parts of the network more closely together. But that may not just in of itself something that will alter the purchasing behaviors of the operators and we would still maybe involved in with Nokia or direct in discrete competitions for different parts of the network.

Paul McWilliams – Next Inning

Maybe one in a different way, when you are looking around the world, we are seeing a lot – it looks like a nice pickup in activity and the emerging wireless markets, so we know for the same amount of secular markets, but markets where we are seeing a big change in the broadband. So if you look at your entire market area, are you seeing operators choose more often to buy turnkey or to compete individuals?

Peter Allen

Again, let me try and categorize here. I think there are really three categories of purchasing behavior. This all turnkey fully bundled solutions. There is probably what I would describe as soft bundled, in other words they will probably seek to buy through their system integrator. They will probably give preference to – in some form or rate more highly a solution that comes from a vendor delay already have in the network, but I will run a separate competition for the different piece of their equipment. And then there is a third category where they want just simply buy direct and not work through the system integrator whether the operator had access the integrator themselves.

And I can’t give you any particular trend as to one or over the other. At this stage I would say all are experiencing more activity. So what I would tell you is that the solutions that are pushing operators to understand there is – valuing more value in integration and coordination with other parts of the equipment.

Paul McWilliams – Next Inning

Very good. On Sprint, is your confidence level of participating in the Sprint build-out thing over the last quarter or two?

Peter Allen

I don’t know, it will change, I would say I have always been confident about that and I’m confident about that. And the reason I’m confident about that is, we have a considerable part of the deployed network I think we’re somewhere in the vicinity of 70% of deployed microwave in the Sprint network. And obviously, there is value associated with the interoperability with the forward or the backward compatibility of that four solutions with that – of that network. So that places us in a good position.

But at the same time, I think we have the right forward products for the network that they are trying to build. It was the reason that we were selected the first time around and I think it is the reason that I remain confident that we will be able to participate in that network in the future. And I think the recent organization changes were aimed at getting that network investment move in a right direction and more rapidly because it is a significant commitment by SoftBank to put that network behind the spectrum they acquired when they made the investment in Sprint.

Paul McWilliams – Next Inning

Yes. One quick housekeeping question, I will turn it back over. Are you – Russell, are you factoring the receivables at all?

Russell Frederick

No.

Paul McWilliams – Next Inning

Okay. Just want to make sure because of other comments. Thank you, again, very much of taking my questions.

Peter Allen

Thank you, Paul.

Russell Frederick

Thank you.

Paul McWilliams – Next Inning

Congratulations on – executing with the inflation.

Peter Allen

Thank you.

Russell Frederick

Thanks, Paul.

Operator

Thank you. [Operator Instructions] And I’m seeing no other questioners at the queue at this time.

Peter Allen

Okay. Thank you. Thank you for joining us on the call this morning. And we look forward to stay in touch as we progress through our new fiscal year. Thanks everybody.

Russell Frederick

Thank you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This now concludes the program. And you may all disconnect. Everyone have a great day.

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