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Executives

Peter Allen – President, Chief Executive Officer & Director

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

Analysts

David Hudson – BKF Asset Management

Dennis Fong – Orian Securities

Kevin Dede – Morgan, Joseph & Co, Inc.

Todd Copeland

Peter [Mesick]

[Kathy Rissick]

DragonWave, Inc. (DWI) F3Q08 Earnings Call January 11, 1969 ET

Operator

Good morning ladies and gentleman. Welcome to the DragonWave, Inc. third quarter 2008 financial results conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session. (Operator Instructions) As a reminder this conference is being recorded today, January 11, 2008. It is now my pleasure to introduce Russell Frederick, Chief financial officer. Please go ahead sir.

Russell Frederick

Good morning. Thank you for joining the DragonWave Inc. Q3 fiscal 2008 results conference call on this 11th day of January 2008. Happy New Year. Our speakers today are myself Russell Frederick, Vice President and Chief Financial Officer and Peter Allen, President and Chief Executive Officer. Please note that our results for the third quarter fiscal year 2008 ended November 30, 2007 were issued via our wire service at the end of business day on Thursday, January 10, 2008. I will begin the call by reviewing the financial results for the quarter and then Peter will provide a business update and discussion. We will then open the call for questions. We plan to finish by 9:30 this morning.

Slide 3 - Before we begin I would like to remind everyone that this conference call contains forward-looking statements that are based on current expectation, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. For a complete description of such risks and uncertainties see article four of our Annual Information Form dated May 22, 2007. Which we filed with the Ontario Securities Commission. At this time I would remind everyone that you may access our presentation today on our website at www.DragonWaveInc.com inthe investor relations section.

Slide 4 - I should mention at the outset that all references to dollars refer to Canadian currency unless we specifically mention otherwise. On slide four you can see that revenues in our third quarter of fiscal year 2008 came in at $11.5 million. This represented year-over-year growth of 139% and a sequential growth from the second quarter from fiscal year 2008 of 17%. So, we have continued to deliver strong revenue growth in the third quarter and I am happy to report that this quarterly revenue is the highest quarterly revenue in the company’s history.

If you now turn to Slide 5 you will note that in North America revenue from customers grew to $5.7 million, a 70% increase from $3.4 million of revenue in the same quarter of fiscal year 2007. Revenue from customers outside North America grew to $5.8 million up 300% from $1.4 million in Q3 of fiscal year 2007. Revenue from outside North America accounted for 50% of the quarterly revenue. This is a result of DragonWave’s continuing initiatives to increase its customer penetration into regions outside North America.

DragonWave sold to 51 customers in the third quarter and out of this number 14 were new customers, ten of which were outside North America. During the quarter the company had three customers that generated more than 10% of revenue. It is also of note that these customers are in three different areas of the world meaning that DragonWave had a 10% customer in each of North America, Europe and the Middle East in Q3FY08. We are extremely pleased with this traction as it means that we are broadening our large customer base around the world. As we have said in the past with large customers and the project nature of their deployments we can expect to experience fluctuations in our quarterly revenue flows. While we have not experienced this lumpiness this year we do see that this dynamic is such that we will have lower growth in Q4.

I will now address Slide 6 which shows our statement of operations. Having talked about the revenue I would like to turn your attention to the remainder of the profit and loss statement. Gross margin for the third quarter was 39%. This represents a 2% increase from the 37% gross margin reported in the second quarter and is comparable to the previous year. The quarterly trend in fiscal year 08 has gross margins increasing from 35% in Q1 to 37% in Q2 and to 39% in the current quarter. This increase is a result of continued cost reduction programs and a favorable product mix with increasing sales of our Horizon Compaq product line. You will see expenses overall in Q3 increased year-to-year by $2.4 million to $5.8 million. This resulted in an operating loss of $1.3 million for the quarter compared to a $1.5 million loss for Q3 in the previous year and a decrease sequentially from a $1.8 million loss reported in Q2 of this year.

R&D spending increased from $1.5 million to $2.7 million compared to Q3 last year and up slightly from $2.5 million in the second quarter this year. The increase in R&D spending is mainly due to investment in the Horizon product line, market driven R&D associated with major near term opportunities and market expansion activities which require a broader spectrum offering and the local certification and approval process to be addressed.

Sales and marketing spending increased from $1.5 million to $2.4 million year-over-year and was up from $1.9 million in Q2FY08. The increase in spending was primarily a result of growth in sales head count and increased sales and marketing activities associated with the international expansion. G&A spending increased from $.6 million in Q3FY07 to $.8 million in Q3FY08, this increase was driven by higher head count related costs and head office functions as well as higher costs incurred to support a publically traded company. At the net income level the company lost $1.2 million in Q3FY08 versus $2.5 million in Q3FY07. This loss included a foreign exchange lost of $.2 million because of the strength of the Canadian Dollar relative to the US Dollar.

I will now turn to Slide 7 which highlights some balance sheet metrics. If we look at cash and short tem investment in combination you can see an increase from $1.3 million at the end of Q4FY07 to $23.1 million at the end of Q2FY08 and $40.8 million at the end of Q3FY08. The main reason for this was the cash generated from the initial public offering on April 19, 2007 as well as the follow on offering completed on September 20, 2007. Total funds received net of issuance cost was $49 million. Cash was used to support the loss in the quarter, to repay $1.9 million of the company’s credit line and to purchase $.7 million in capital assets.

DSO, days sales outstanding, in Q3FY08 came in at 52 days compared to 77 days in Q4FY07 and inventory turn over came in at 4.4 times in Q3FY08 versus 3.2 times in Q4FY07 and 4.9 times in Q2FY08. This concludes my remarks on the financial results and I will now turn it over to Peter Allen to provide the business update. Slide 8 please.

Peter Allen

Good morning everyone. Firstly I would like to say how pleased I am with what I view as the solid progress that we made during our third quarter of fiscal 2008. As I have said on previous conference calls I believe that our results have reflected the success we are having in implementing our key strategies. I believe that this is very strongly the case with our Q3 performance, with our focus on growth, customer capture, international expansion, gross margin improvement and the continued roll out of our Horizon Compact product.

Slide 9 please - Again, this has been a very busy quarter. We have already reported on several key events including next wave strategic network solutions agreement, the financing on September 20th, the agreement with NEC and the launch of unite platform. In addition to these notable events Orascom Telecom selected DragonWave’s Horizon Compact high capacity IP backhaul product for a new nationwide wire max network in Pakistan with their mobile operator Mobilink. Orascom is on of the largest GSM carriers operating in the Middle East, Africa and South Asia with more than 60 million customers. Pakistan is the seventh largest country in the world with a population of over 160 million people. The initial roll out will provide between 50 and 200 megabytes of backhaul capability beginning in the cities of Islamabad, Karachi, Lahore. Mobilink’s goal is to provide residents and business users in cities across Pakistan with an affordable and portable broadband service.

Here in North America we also announced a business only broadband in Chicago’s largest wireless broadband provider had selected a DragonWave solution to roll out higher bandwidth services to business customers. Business only port band is deploying DragonWaves technology to increase the speeds of its primary , secondary and disaster recovery collectivity services in Chicago to more than 300 megabytes per second and to introduce those services in additional markets.

Overall revenue for our first nine months of fiscal 2008 outside of North America was $10.1 million compared to only $3 million last year, reflecting our strong focus on expanding in Europe and in theMiddle East. Our revenue growth in North America was also very pleasing during the same period increasing to $19.9 million from $13.2 million a 51% increase over the first nine months for the previous year and in Q3 as Russell mentioned North America revenue grew to $5.7 million a 70% increase from $3.4 million.

Slide 10 please – Horizon Compact continues to gain traction in the market. In Q3 Horizon Compact revenues grew from over $1 million of revenue in Q2 to over $4 million of revenue in Q3. This rate of adoption by both historical and new customers is very encouraging as it demonstrates that our customers recognize the value proposition associated with this product line.

We have continued to strengthen our sales and marketing team and improve our geographical footprint. We have established offices in both the United Kingdom and Dubai and have added an additional sales professional in central Europe. Another key strategy is margin improvement and I am pleased that our Q3 results again represent further progress in improving our margins while simultaneously improving value to customers. A key element of course of our ongoing focus on margins has been the introduction and penetration of our Horizon platform.

I should also say a few words about a couple of the more prominent key accounts. In the case of Sprint I was very pleased to see their comments earlier this week at the Consumer Electronics Show in Las Vegas where they reiterated their commitment to developing WiMax services and said that they are on track towards commercial services on that network. I believe this is the first statement reaffirming their WiMax strategy since the arrival of their new CEO.

I was also pleased to see that [inaudible] has begun a soft launch with its employees in Chicago, Baltimore and Washington and that they continue to develop their ECO system with further relationships with companies for software and services, hosted storage, business process outsourcing and WiMax modem subscriber devices. On DragonWave’s part we continue to be actively involved in the pursuit of Sprint’s business with the aim of being deployed in their WiMax network.

I should also say a few words about ClearWire. As you may know ClearWire and Sprint announced that they mutually agreed to terminate their letter of intent to collaborate on a nationwide network in the United States. Although ClearWire recently announced that they have launched services in their 50th market and they remain a cornerstone customer for DragonWave they also indicated that in anticipation of the Sprint transaction development progress was temporarily suspended in many of their planned markets. This reduction has impacted DragonWave in Q3 and will also do so in Q4. As Russell indicated earlier we now expected lower growth in Q4.

I would however like to add that overall our feeling about growth in fiscal 2009 remains about the same as last quarter. With anxieties about current credit markets in North America being balanced off against increased international opportunities.

This concludes my remarks and I would now like to ask the conference operator to open the bridge for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David Hudson. Please go ahead.

David Hudson – BKF Asset Management

My first question is just outside of the US there still seems to be a lot of WiMax trials taking place especially in emerging markets. Despite the credit market uncertainty are you still seeing lots of RFP activity outside of North America? And, are trials converting to commercial roll outs a little slower than your expectations? Or, are things pretty much on track?

Peter Allen

I would say things are on track. I think that we’ve – let’s use Orascom for example. It gives us the opportunity to – we did a trial there which incidentally was in Pakistan but the trial really was something that could be leveraged across the Orascom group as a whole. So, we think that there’s the opportunity to participate in a number of deployments associated with that trial and we’ll get obviously, good leverage from that. In other areas I would say the trial activity that we have going on right now outside of North America, it’s never been higher. Of course, not all of them will convert and some of them will be impacted by the North America financing activities but, on the whole I would say the prospects internationally have improved since we spoke on the last conference call. And, we’re in a wider geographical base of trials underway that we can take advantage of.

David Hudson – BKF Asset Management

My second question is just on Sprint. We met with some of the members of the zone team at CS this week. They seem to be moving ahead with the launch plans. This being said other equipment OEMs we spoke to indicate that there’s been some delays in awards and deployments. Can you provide any insight with regards to your thoughts Peter on timing for a potential backhaul award from Sprint Nextel?

Peter Allen

I believe that it has to be fairly imminent in the next quarter if their timetable to roll out services that they’ve indicated is to be maintained.

David Hudson – BKF Asset Management

Just lastly, the pricing environment outside of NEC who seem to be leading with price can you talk about your perspective with regard to the price competitiveness and weather you believe it remains pretty rational out there.

Peter Allen

Rational, I don’t quite know how to address it that way. Certainly, I would say some areas of the world there is pretty aggressive price competition. I don’t think it’s ever been any different in a telecom equipment business, particularly in a high growth area. We have to make sure that our cost performance of our products is geared correctly for that environment so that we have profitable winning strategy in that environment. I think as was indicated by the Q3 results we took another step forward on margin this quarter. In the face of that dynamic in the market today. I think that we are going to see strong price competition continuing in this market and would not expect it to be any different.

Operator

Thank you. Your next question comes from Dennis Fong. Please go ahead.

Dennis Fong – Orian Securities

First off Peter I was just wondering with some of the spectrum auctions taking place next year in Europe, Italy, UK and other countries are you starting to see RFP activity related to those networks yet or would it be mostly activity related to spectrum that has already been allocated in other countries.

Peter Allen

I think that certainly we have seen some RFI activity I would say, that I would characterize as being information gathering to allow service providers to understand the commercial and economic envelope in which the spectrum has value. I think that needs to be distinguished from RFP activity for deployment. And no, I wouldn’t characterize that we have yet seen RFP’s for operators launching on spectrum they don’t have yet in Italy and the UK. But of course if you kind of look back we have a lot of spectrum that was awarded a year or so ago in both France and Germany and those deployments have been the subject of recent and current competition. I think that the spectrum that will be launched next year will probably result in deployments in the year after, is how I think about it.

Dennis Fong – Orian Securities

In terms of previously when, we know one of your large customers is ClearWire, would you expect them to be, are they evaluating the Horizon Compact platform or do you expect them to deploy that platform at some time in the future or maybe still use AirPair solutions?

Peter Allen

I certainly expect ClearWire to deploy Horizon Compact. Absolutely.

Dennis Fong – Orian Securities

And then, at that stage you would expect the same favorable impact on margins as big starts improve?

Peter Allen

Yes.

Dennis Fong – Orian Securities

So, then to follow on with that if you kind of look forward maybe one or two years what do you think is kind of a percentage that Horizon Compact might settle at the percentage of overall sales?

Peter Allen

Well Dennis I think it is not just Horizon Compact. Horizon is our new family of products and Compact was the first product release within that family. We will be making further product announcements about the Horizon family probably at CTIA this year. Over the next, I am guessing 12 months or so, I expect that Horizon as a new family of products, both Compact and others, will represent the vast majority of our revenues.

Dennis Fong – Orian Securities

And then just lastly relating to Sprint since they’ve already soft launched in I guess, two or three of there initial markets, can you give us an idea how large do you think those deployments would be intitially in terms of would we only be looking at 25% of the coverage that they would intend at commercial launch or 50% of the coverage?

Peter Allen

I am sorry, are you asking the question, what percentage is a soft launch covering?

Dennis Fong – Orian Securities

Yes, just to get an idea as to how much work they still need to do before the commercial launch. As you said if they were to follow the plan that they have laid out certainly you would think a backhaul award would be rather eminent. I want to get an idea of what they have done so far.

Peter Allen

I think the soft launch, my understanding of the soft launch is that its in a fairly narrow geographical area and the trial customers, so to speak, are only Sprint employees. I think it is probably centered around Sprint locations and in narrow areas.

Dennis Fong – Orian Securities

And the backhaul they would have deployed in the soft launch would have been the various vendors they would be evaluating for the award?

Peter Allen

No. I think maybe because the traffic, because it is narrow in terms of geography and a small number of subscribers I would imagine that the backhaul could still be lease line.

Operator

Your next question comes from Kevin Dede. Please go ahead.

Kevin Dede – Morgan, Joseph & Co, Inc.

I was curious if you could offer a little more information regarding the capacities and frequencies covered with Horizon Compact platform as it stands now? And where you see market demands in terms of frequency and capacity? And maybe a little more insight as to the product line you might introduce at CTIA and how that might be different from than where you are going with the Unite platform?

Peter Allen

Capacity in general I would say, the general trend is that capacities have been in our demand statement have been increasing. On average people are buying more and higher capacity products, more 100 megabytes this quarter than last quarter and less 50 megabytes. As we go to international markets I think that kind of disturbs that trend a little bit because I think some of those markets start at a lower capacity start point.

In terms of frequencies the aim of Horizon Compact is to cover all of the frequencies that we cover with AirPair. Recently we introduced 38 gigahertz on AirPair and Horizon Compact has a moving target all the time to catch up with all the frequencies that we offer in AirPair. We launched Horizon Compact initially with 18 and 23 gigahertz and we’re rolling out - the platform is capable of all of the frequencies and the rate of which we roll out frequencies is dependant upon the order of our demand, so to speak. Over time you will se that the products available in all frequencies in all markets.

The third part of your question I think was about where is the Horizon product portfolio going. We offer products that are all outdoor as well as the traditional split now and AirPair has both of those configurations. Horizon’s first launch was with the all outdoor unit, that’s what Compact’s is. So, it follows that there will be a spilt [inaudible] product up coming out behind that and that’s the product that we’ll announce in CTIA. The Horizon version of the AirPair split [inaudible] product is the next one in the family to be released.

Kevin Dede – Morgan, Joseph & Co, Inc.

How about on the capacity side Peter? What are your intentions there? Are you going to try pair down capacity ranges to address the growth in international markets? Or you going to try and continue to expand capacity capabilities?

Peter Allen

No. Our product today can go down to as little as - we sell it with as little as 5 megabytes of capacity so we have the capability to address low capacity today. Certainly the projected demand for capacity on both WiMax networks and cellular based networks is increasing and we expect to continue the trend of bringing new higher capacity out with out new products. So, if you look to Horizon Compact, Horizon Compact had a capability that was double the capability of AirPair. You will see that when we bring out split [inaudible] version of Horizon you will see higher capacity capability in that corner.

Kevin Dede – Morgan, Joseph & Co, Inc.

Last question for me is on the financial side. I was just wondering if you wouldn’t mind reviewing what you think your break even revenue range was? And, what the ultimate business model looks like from the margin profile? And, maybe give us a little more insight as to why you think the demand is falling off a little bit in the current quarter?

Kevin Dede – Morgan, Joseph & Co, Inc.

Let me take the last bit first and then I will let Russell deal with the numbers. As I said earlier, when Sprint and ClearWire came together and then ultimately parted ClearWire did temporarily suspend some of the markets that they were planning to develop for launch in the early part of 2008, which is where we build that product and ship that product in the fourth quarter. And, as a result of that suspension of development in anticipation of the Sprint transaction which then didn’t happen, they are not building those markets now and as a result don’t need the product that we had previously anticipated that they would require. I will hand over to Russell for the question on the breakeven and the margin.

Russell Frederick

I think on the breakeven obviously, there’s a number of factors that go into that but if you look at our current profile, the breakeven range is probably in the $13 to $14 million or so per quarter. I think from a business model point of view we think that our gross margins, we hope to be able to get those into the low 40’s over time and as we said earlier, we think that we continue to be in a growth space and we continue to be optimistic about our prospects for next year.

Operator

Thank you. Your next question comes from Todd Copeland. Please go ahead.

Todd Copeland

I am wondering if you guys are going to be calling out a specific revenue target for the fourth quarter at this point.

Peter Allen

We are not at this stage, we don’t think that that is possible. There is still a lot of dynamics moving around for the fourth quarter. We have not provided revenue guidance anytime and don’t believe - and the reason for that is because of the lumpy nature of the projects that our customers are implementing. So no, we are not planning to do that.

Todd Copeland

When you think about the possibility of a Sprint ramp, given the targeted coverage objectives for 2008 what do you think that might look like?

Peter Allen

What sprint has to do is get I think 100 million population area covered of a 100 million people by the end of this calendar year and that’s a considerable ramp. As I said before I think that from our part we are actively involved in pursuing that business. It has not been awarded and it may be awarded to multiple suppliers and depending upon that outcome will depend upon the extent of the ramp. From our part there is nothing about that ramp that I don’t believe - even if 100% of the business was awarded to DragonWave I believe we could handle the ramp. We have very significant capacity available to us in our contract manufacturers and in our supply chain and we don’t believe that any of that would restrict our ability to support Sprint and any other customer during 2008. So, that ramp is accomidatable whatever they chose, whether they choose to award it to us or whatever they choose to award us.

Todd Copeland

When you think about the supply chain, obviously in an EMS Company can take what you can order and ship it out but, to the extent of certification and testing in the back end. Is that a possible bottle neck, maybe talk a little bit about that?

Peter Allen

No, I don’t believe so. I think that if you, in general Todd, if you look at the way these overall networks get deployed, the long lead time is actually the customer’s deployment of development of the sites, identification of the sites and the development of the sites. That takes a lot longer than it would for me to turn up test capacity in the back end. We have considerable test capacity available to us to date. If I need to turn more capacity on I can turn it on in eight to 10 weeks and it takes them more than eight to 10 weeks to develop a market. I don’t really see a problem.

Todd Copeland

You obviously have had Horizon out there for a couple of quarters and Compact is doing very well. What are you finding either in current RFP’s and/or recent awards as the most important features that allowed you to win business for that product over the last couple of quarters?

Peter Allen

I think a lot of the customers, I would say there is an increased understanding of the benefits of an all outdoor zero [inaudible] product and certainly that plays very well in certain site conditions. They like the flexibility of more capacity yet retaining the ability to have the option of scaling that capacity on demand. One of the nice features that Horizon has is a loop back capability so that the radio can be self tested. One of the problems when you troubleshoot a link in the field can be, when you have got a separate modem and a separate radio at both ends you essentially have four units and if one is misbehaving you are not quite sure which one it is and you have problems isolating the four. With Horizon Compact because it is integrated in the first place you reduce that problem and we have re-introduced capabilities that allow self diagnoses in the product that isolates the problem even further. So, it helps during the installations phase and it also helps during any problems that the customer might have with the link and they like that because it reduces there off phase big time.

Todd Copeland

When we had done some competitive analysis we had heard that while you had not seen a response for a similar product from the Ceragons of this world, certainly was discussed as being on the road map. Have you seen any specific points along those lines yet?

Kevin

I am very surprised because they had indicated previously that there was no demand for it. It doesn’t surprise me at all and I am sure that others will follow DragonWaves leadership position.

Todd Copeland

But, at this point in RFPs you are not seeing this type of device in the market.

Kevin

I wouldn’t say that I would say the RFP’s are always that specific about whether or not they want an all outdoor - sometimes they are Todd, sometimes a customer is very specific he says, “Look I want an all outdoor unit because my cabinets are too full and they are running to hot. I need to get stuff out of my cabinets. I want an all outdoor unit.” That sometimes happens.

Todd Copeland

I was not very clear Peter. What I meant was from your competitors they’re proposing such a product at this point in response to RFPs, as far as you know?

Peter Allen

No.

Todd Copeland

Are you characterizing your lead in the market with this product? What do you think it is?

Peter Allen

What do I think my lead is?

Todd Copeland

Yes

Peter Allen

12 months.

Todd Copeland

Okay. So, it is a 12 month development cycle?

Peter Allen

I would think so. Now, it may be a little bit - one of the things that DragonWave always did was that it started with an all outdoor products. So, all of the engineering was done to the harsher environmental conditions of being all outdoors. It is easier to do that then go indoors with an outdoor product then the other way around. Because if you’re basic engineering is for a product that has only been deployed indoors then you have more to change when you take it outdoors. So, without knowing the details of how they have engineered their products it may in fact take longer than that because they may have more fundamental engineering but I would be cautious and say a minimal of 12 months.

Todd Copeland

Two other quick questions, when you think about ClearWire sort of dealing with the suspension and ultimately jump starting that, what milestone should we be watching for to see that that is either still stalled or perhaps getting back on track?

Peter Allen

I am hoping that certainly during Q1 we will be able to talk about revenues for the markets that they’ll be building in that quarter and we have some visibility of those markets.

Todd Copeland

What I mean is are you hearing that they actually need to establish who strategic investor is fully fund the network cap ex, etc.?

Peter Allen

They have publicly said that they are - one, of the reason that they agreed with Sprint to terminate the letter of intent was in order that they could go on and pursue other partnership opportunities. That has been a public statement of theirs and I have no further insight into that but I certainly expect that that is what they are doing.

Todd Copeland

Last question, when you think about the international markets, we’ve been very focused on the North America market and DragonWaves perspective but, maybe if you could just highlight what you think are going to be your most important international markets over the next two or three quarters? What should we be watching for?

Peter Allen

Well I think I have talked to people before about the spectrum that has been licensed in Western Europe and I think some of those networks will move towards construction during 2008. Our thrust is to go further into Eastern Europe and there are interesting markets in Eastern Europe. But, I would highlight in particular the Middle East right now, there is a lot going on in the Middle East and we see lot and lots of opportunities with a wide range of both pan regional and national customers.

Operator

Thank you. Your next question comes from Peter [Mesick]. Please go ahead.

Peter [Mesick]

A couple of things, I think it was asked but just to elaborate on the margin structure what sort of longer term gross margin do you think is feasible in the business? That would be my first question and then I have some competitive and market dynamics.

Russell Frederick

Peter we have always said that we were targeting to get the business into the low to mid 40’s in terms of gross margin. So we are tracking, on the other hand we have never said the exact timing of when that will happen. You can see the trajectory and that continues to be our goal.

Peter [Mesick]

Okay. In terms of market activity, I know everyone has asked you about international etc. but, let’s just walk through some specifics. Vodafone apparently is doing a big E1 replacement trial and has talked about removing about 40% of the cost. Have you seen any E1 or T1 replacements yet for existing cellular networks?

Peter Allen

That is not an application that we are particularly focused on Peter. We have seen a lot of activity from Vodafone about there next generation network but, in terms of the lower capacity lease line replacements, no.

Peter [Mesick]

Maybe not lower capacity but as far as I understood they are potentially also looking at, for example, HSPPA removing or consolidating lease lines for that. But, maybe we can also talk about AT&T and their 700 MGZ spectrum. They bought some spectrum from Aloha; we are also going to have some additional spectrum auctions in the United States. Any thoughts there?

Peter Allen

I have to say there is a lot going on at AT&T and it is not quite clear to me what really is what really. We certainly have seen them acquire spectrum as you’ve indicated. They still have some spectrum from the acquisition of BellSouth as well and I do see activity inside AT&T trying to think about what to do with that spectrum. I also see activity around getting off lease lines out of territory. I also know that in the quarter we saw statements come out from AT&T about the longer term, the next generation network being based upon LTE. Quite which of those dynamics are the most important in AT&T and which ones are the most important in the short term is not quite clear to me. But, certainly I would say that I think AT&T investment in spectrum indicates a strategy to be doing something with that spectrum. $2.5 billion dollars is a lot of money and I doubt that they would have bought it to keep it on the shelf.

Operator

Thank you. Your next question comes from David Hudson. Please go ahead.

David Hudson – BKF Asset Management

Just a quick follow up Peter. Can you help a little in terms of Sprint and what percentage of the pops are getting covered with wireless backhaul versus wired whether that be a T1 leased or fiber. Thanks.

Peter Allen

As I said, I think the soft launches have gone out with property on there back of their existing lease line infrastructure wherever if they have fiber they will use it on any of the self sites. But in general the expectation in Sprint and [Lsquare] that the vast majority, and I am talking 75% probably, will not be covered by fiber and scaling lease lines is not an economic and operational or option. So I think the vast majority will be wireless backhaul.

David Hudson – BKF Asset Management

So overall they would require at least 7,750 back haul lengths. Is that reasonable to think?

Peter Allen

For 100 million pops?

David Hudson – BKF Asset Management

Well 75 million pops are covered with wireless.

Peter Allen

Did you say 7,500 lengths? I have to think about that number David. I think it is probably a little bit more than that.

Operator

Thank you. (Operator instructions) Your next question comes from [Kathy Rissick]. Please go ahead.

[Kathy Rissick]

I wanted to just come back to gross margin a little bit and talk a bit more short term. I noticed that year-over-year, and I may have missed a one time item Q3 fiscal 2007 was up about this high. Was there something, like you have been talking about a trajectory just looking forward over the next couple of quarters and how much Horizon might increase as a percentage of the revenues? May we expect sort of a seasonal drop back down? What would you be thinking in terms of over the next couple of quarters? How straight line is that trajectory?

Russell Frederick

So let me talk about Q3 in the previous year. Kathy, there was a one time unusual item. We had one contract manufacturer that was discontinued and so there was some residual inventory that we were able to purchase at relatively low prices so that favorable variance fed into last Q3. If you take that out those margins were down into the 33 or 34 so you can see the increase year-to-year is actually quite significant once you take that item out.

[Kathy Rissick]

Right and so $4 million this quarter in Horizon, just that absolute number would we think that might despite some of the other slow down in past in fiscal Q4 would that absolute number potentially increase?

Russell Frederick

I think it will but I think the AirPair will continue to be an important product for DragonWave so you will see some leveling off and being that it is so new it is hard for us to even say at this time what that level off point will be. But, as it increases it will continue to help the margins. And, as we introduce our new products we always take cost reduction as an opportunity on every new release so that is really at the foundation of how we plan to continue to improve our margins over time.

[Kathy Rissick]

Then, looking longer term so thinking maybe Horizon is going to be the vast majority of the revenues. What do you see as happening to the Unite product, would it become a larger portion of the AirPair family within that trajectory? And, does it have a different margin than your classic AirPair?

Peter Allen

I think it does have a slightly different margin, I don’t think it is material. And, I think you will see the Unite capability migrate into the Horizon family as well. So, what Unite represents is the ability for service providers to converge their networks. Get the benefit of Ethernet, the economics flexibility of Ethernet transport but still be able to support legacy services. And, that is going to be an increased feature of our requirement as we move towards more of the legacy service providers and so, it makes sense of course to make sure we migrate that capability into our very newest platforms and that is what we will do.

[Kathy Rissick]

Then, just a little lower down on the op backs, your sales and marketing probably popped up a little bit higher than I might have been expecting. You commented about a couple of new offices and a new sales professional and they sort of all baked into Q3 and I noticed that it does come down as a percent of revenue but, how should we think about that sort of going forward in the next two or three quarters?

Peter Allen

I think in Q3 we got some of the things that we have been trying to do done a little earlier and therefore we had the cost for a little bit longer than we planned.

[Kathy Rissick]

Just last one and I may have missed it. Did you talk about 10% customer and what that number was?

Peter Allen

We said that we had three 10% customers.

Operator

Thank you. (Operator Instructions) There are no further questions at this time.

Russell Frederick

Thank you everybody we appreciate your participation and have a great year.

Operator

Ladies and gentlemen this concludes the conference call for today. You may now disconnect your line and have a great day.

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Source: DragonWave F3Q08 (Quarter End 11/30/07) Earnings Call Transcript
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