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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 quarter2008 financial results conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct aquestion and answer session. (OperatorInstructions) As a reminder thisconference is being recorded today, January 11, 2008. It is now mypleasure to introduce Russell Frederick, Chief financial officer. Please go ahead sir.

Russell Frederick

Good morning. Thankyou for joining the DragonWave Inc. Q3 fiscal 2008 results conference call onthis 11th day of January 2008. Happy New Year. Our speakerstoday are myself Russell Frederick, Vice President and Chief Financial Officerand Peter Allen, President and Chief Executive Officer. Please note that our results for the third quarterfiscal year 2008 ended November 30, 2007 were issued via our wire service at the end of business day onThursday, January 10, 2008. I will begin the call by reviewing thefinancial results for the quarter and then Peter will provide a business updateand discussion. We will then open thecall for questions. We plan to finish by9:30 this morning.

Slide 3 - Before we begin I would like to remind everyonethat this conference call contains forward-looking statements that arebased on current expectation, forecasts and assumptions that involve risks anduncertainties that could cause actual outcomes and results to differ materially. For acomplete description of such risks and uncertainties seearticle four of our Annual Information Formdated May 22, 2007. Which we filed with theOntario Securities Commission. Atthis time I would remind everyone that you may access our presentation today onour website at www.DragonWaveInc.com inthe investor relationssection.

Slide 4 - I should mention at the outset that all referencesto dollars refer to Canadian currency unless we specifically mentionotherwise. On slide four you can seethat revenues in our third quarter of fiscal year 2008 came in at $11.5 million. This represented year-over-year growth of139% and a sequential growth from the second quarter from fiscal year 2008 of17%. So, we have continued to deliverstrong revenue growth in the third quarter and I am happy to report that thisquarterly revenue is the highest quarterly revenue in the company’shistory.

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 year2007. Revenue from customers outside North America grew to $5.8 million up 300% from $1.4 million in Q3 offiscal year 2007. Revenue from outside North America accounted for 50% of the quarterly revenue. This is a result of DragonWave’s continuinginitiatives to increase its customer penetration into regions outside North America.

DragonWave sold to 51 customers in the third quarter and outof this number 14 were new customers, ten of which were outside North America. During the quarterthe company had three customers that generated more than 10% of revenue. It is also of note that these customers arein 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 tractionas it means that we are broadening our large customer base around theworld. As we have said in the past withlarge customers and the project nature of their deployments we can expect toexperience fluctuations in our quarterly revenue flows. While we have not experienced this lumpinessthis year we do see that this dynamic is such that we will have lower growth inQ4.

I will now address Slide 6 which shows our statement of operations. Having talked about the revenue I would liketo turn your attention to the remainder of the profit and loss statement. Gross margin for the third quarter was39%. This represents a 2% increase fromthe 37% gross margin reported in the second quarter and is comparable to theprevious year. The quarterly trend infiscal year 08 has gross margins increasing from 35% in Q1 to 37% in Q2 and to39% in the current quarter. Thisincrease is a result of continued cost reduction programs and a favorableproduct mix with increasing sales of our Horizon Compaq product line. You will see expenses overall in Q3 increasedyear-to-year by $2.4 million to $5.8 million. This resulted in an operating loss of $1.3 million for the quartercompared to a $1.5 million loss for Q3 in the previous year and a decreasesequentially from a $1.8 million loss reported in Q2 of this year.

R&D spending increased from $1.5 million to $2.7 millioncompared to Q3 last year and up slightly from $2.5 million in the second quarterthis year. The increase in R&Dspending is mainly due to investment in the Horizon product line, market drivenR&D associated with major near term opportunities and market expansionactivities which require a broader spectrum offering and the local certificationand 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 aresult of growth in sales head count and increased sales and marketingactivities associated with the international expansion. G&A spending increased from $.6 million in Q3FY07 to $.8 million inQ3FY08, this increase was driven byhigher head count related costs and head office functions as well as highercosts incurred to support a publically traded company. At the net income level the company lost $1.2million 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 balancesheet metrics. If we look at cash andshort tem investment in combination you can see an increase from $1.3 millionat the end of Q4FY07 to $23.1 million at the end of Q2FY08 and $40.8 million atthe end of Q3FY08. The main reason forthis was the cash generated from the initial public offering on April 19, 2007 as well as the followon offering completed on September 20, 2007. Total funds receivednet of issuance cost was $49 million. Cash was used to support the loss in the quarter, to repay $1.9 millionof the company’s credit line and to purchase $.7 million in capitalassets.

DSO, days sales outstanding, in Q3FY08 came in at 52 dayscompared to 77 days in Q4FY07 and inventory turn over came in at 4.4 times inQ3FY08 versus 3.2 times in Q4FY07 and 4.9 times in Q2FY08. This concludes my remarks on the financialresults 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 thesolid progress that we made during our third quarter of fiscal 2008. As I have said on previous conference calls Ibelieve that our results have reflected the success we are having inimplementing our key strategies. Ibelieve that this is very strongly the case with our Q3 performance, with ourfocus on growth, customer capture, international expansion, gross margin improvementand the continued roll out of our Horizon Compact product.

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

Here in North America we also announceda business only broadband in Chicago’slargest wireless broadband provider had selected a DragonWave solution to rollout higher bandwidth services to business customers. Business only port band is deployingDragonWaves technology to increase the speeds of its primary , secondary anddisaster recovery collectivity services in Chicago to more than 300 megabytesper second and to introduce those services in additional markets.

Overall revenue for our first ninemonths of fiscal 2008 outside of North America was $10.1million compared to only $3 million last year, reflecting our strong focus onexpanding in Europeand in theMiddle East. Ourrevenue growth inNorth America was also very pleasing during thesame period increasing to $19.9 million from $13.2 million a51% increase over thefirst nine months for theprevious year and inQ3 as Russell mentioned North America revenue grew to $5.7 million a70% increase from $3.4 million.

Slide 10 please – Horizon Compact continues to gain tractionin the market. In Q3 Horizon Compactrevenues grew from over $1 million of revenue in Q2 to over $4 million ofrevenue in Q3. This rate of adoption byboth historical and new customers is very encouraging as it demonstrates thatour customers recognize the value proposition associated with this productline.

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

I should also say a few words about a couple of the more prominentkey accounts. In the case of Sprint Iwas very pleased to see their comments earlier this week at the ConsumerElectronics Show in Las Vegas wherethey reiterated their commitment to developing WiMax services and said thatthey are on track towards commercial services on that network. I believe this is the first statementreaffirming their WiMax strategy since the arrival of their new CEO.

I was also pleased to see that [inaudible] has begun a softlaunch with its employees in Chicago, Baltimore and Washington and that theycontinue to develop their ECO system with further relationships with companiesfor software and services, hosted storage, business process outsourcing andWiMax modem subscriber devices. OnDragonWave’s part we continue to be actively involved in the pursuit ofSprint’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 Sprintannounced that they mutually agreed to terminate their letter of intent tocollaborate on a nationwide network in the United States. Although ClearWire recently announced that they have launched servicesin their 50th market and they remain a cornerstone customer forDragonWave they also indicated that in anticipation of the Sprint transactiondevelopment progress was temporarily suspended in many of their plannedmarkets. This reduction has impacted DragonWave in Q3 and will also do so inQ4. As Russell indicated earlier we nowexpected lower growth in Q4.

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

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

Question-and-AnswerSession

Operator

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

David Hudson – BKFAsset Management

My first question is just outside of the USthere still seems to be a lot of WiMax trials taking place especially inemerging markets. Despite the creditmarket uncertainty are you still seeing lots of RFP activity outside of North America? And, are trialsconverting 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’suse Orascom for example. It gives us theopportunity to – we did a trial there which incidentally was in Pakistanbut the trial really was something that could be leveraged across the Orascomgroup as a whole. So, we think thatthere’s the opportunity to participate in a number of deployments associatedwith that trial and we’ll get obviously, good leverage from that. In other areas I would say the trial activitythat we have going on right now outside of North America,it’s never been higher. Of course, notall of them will convert and some of them will be impacted by the North America financing activities but, on the whole I would say theprospects internationally have improved since we spoke on the last conferencecall. And, we’re in a wider geographicalbase of trials underway that we can take advantage of.

David Hudson – BKFAsset Management

My second question is just on Sprint. We met with some of the members of the zoneteam at CS this week. They seem to bemoving ahead with the launch plans. Thisbeing said other equipment OEMs we spoke to indicate that there’s been somedelays in awards and deployments. Can youprovide any insight with regards to your thoughts Peter on timing for apotential backhaul award from Sprint Nextel?

Peter Allen

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

David Hudson – BKFAsset Management

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

Peter Allen

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

Operator

Thank you. Your nextquestion comes from Dennis Fong. Pleasego ahead.

Dennis Fong – OrianSecurities

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

Peter Allen

I think that certainly we have seen some RFI activity Iwould say, that I would characterize as being information gathering to allowservice providers to understand the commercial and economic envelope in whichthe spectrum has value. I think thatneeds to be distinguished from RFP activity for deployment. And no, I wouldn’t characterize that we haveyet seen RFP’s for operators launching on spectrum they don’t have yet in Italyand the UK. But of course if you kind of look back wehave a lot of spectrum that was awarded a year or so ago in both Franceand Germany andthose deployments have been the subject of recent and current competition. I think that the spectrum that will belaunched next year will probably result in deployments in the year after, ishow I think about it.

Dennis Fong – OrianSecurities

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

Peter Allen

I certainly expect ClearWire to deploy Horizon Compact. Absolutely.

Dennis Fong – OrianSecurities

And then, at that stage you would expect the same favorableimpact 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 forwardmaybe one or two years what do you think is kind of a percentage that Horizon Compactmight settle at the percentage of overall sales?

Peter Allen

Well Dennis I think it is not just Horizon Compact. Horizonis our new family of products and Compact was the first product release within thatfamily. We will be making furtherproduct 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 – OrianSecurities

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

Peter Allen

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

Dennis Fong – OrianSecurities

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

Peter Allen

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

Dennis Fong – OrianSecurities

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

Peter Allen

No. I think maybebecause the traffic, because it is narrow in terms of geography and a smallnumber 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 informationregarding the capacities and frequencies covered with Horizon Compact platformas it stands now? And where you seemarket demands in terms of frequency and capacity? And maybe a little moreinsight as to the product line you might introduce at CTIA and how that mightbe different from than where you are going with the Unite platform?

Peter Allen

Capacity in general I would say, the general trend is thatcapacities have been in our demand statement have been increasing. On average people are buying more and highercapacity products, more 100 megabytes this quarter than last quarter and less50 megabytes. As we go to international marketsI think that kind of disturbs that trend a little bit because I think some ofthose markets start at a lower capacity start point.

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

The third part of your question I think was about where isthe Horizon product portfolio going. Weoffer products that are all outdoor as well as the traditional split now andAirPair has both of those configurations. Horizon’s first launch was with the all outdoor unit, that’s whatCompact’s is. So, it follows that therewill be a spilt [inaudible] product up coming out behind that and that’s theproduct that we’ll announce in CTIA. TheHorizon version of the AirPair split [inaudible] product is the next one in thefamily 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 rangesto address the growth in international markets? Or you going to try andcontinue to expand capacity capabilities?

Peter Allen

No. Our product todaycan go down to as little as - we sell it with as little as 5 megabytes ofcapacity so we have the capability to address low capacity today. Certainly the projected demand for capacityon both WiMax networks and cellular based networks is increasing and we expectto continue the trend of bringing new higher capacity out with out newproducts. So, if you look to HorizonCompact, 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 mindreviewing what you think your break even revenue range was? And, what the ultimate business model lookslike from the margin profile? And, maybegive us a little more insight as to why you think the demand is falling off alittle bit in the current quarter?

Kevin Dede – Morgan,Joseph & Co, Inc.

Let me take the last bit first and then I will let Russelldeal with the numbers. As I saidearlier, when Sprint and ClearWire came together and then ultimately partedClearWire did temporarily suspend some of the markets that they were planningto develop for launch in the early part of 2008, which is where we build thatproduct and ship that product in the fourth quarter. And, as a result of that suspension ofdevelopment 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 productthat we had previously anticipated that they would require. I will hand over to Russell for the questionon the breakeven and the margin.

Russell Frederick

I think on the breakeven obviously, there’s a number offactors that go into that but if you look at our current profile, the breakevenrange is probably in the $13 to $14 million or so per quarter. I think from a business model point of viewwe think that our gross margins, we hope to be able to get those into the low40’s over time and as we said earlier, we think that we continue to be in agrowth space and we continue to be optimistic about our prospects for nextyear.

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 specificrevenue target for the fourth quarter at this point.

Peter Allen

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

Todd Copeland

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

Peter Allen

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

Todd Copeland

When you think about the supply chain, obviously in an EMS Companycan take what you can order and ship it out but, to the extent of certificationand testing in the back end. Is that a possible bottle neck, maybe talk alittle 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 theseoverall networks get deployed, the long lead time is actually the customer’sdeployment of development of the sites, identification of the sites and the developmentof the sites. That takes a lot longerthan it would for me to turn up test capacity in the back end. We have considerable test capacity available tous to date. If I need to turn morecapacity on I can turn it on in eight to 10 weeks and it takes them more thaneight to 10 weeks to develop a market. Idon’t really see a problem.

Todd Copeland

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

Peter Allen

I think a lot of the customers, I would say there is anincreased understanding of the benefits of an all outdoor zero [inaudible] productand certainly that plays very well in certain site conditions. They like the flexibility of more capacityyet retaining the ability to have the option of scaling that capacity ondemand. One of the nice features that Horizonhas is a loop back capability so that the radio can be self tested. One of the problems when you troubleshoot alink in the field can be, when you have got a separate modem and a separateradio at both ends you essentially have four units and if one is misbehaving youare not quite sure which one it is and you have problems isolating thefour. With Horizon Compact because it isintegrated in the first place you reduce that problem and we have re-introducedcapabilities that allow self diagnoses in the product that isolates the problemeven further. So, it helps during theinstallations phase and it also helps during any problems that the customermight have with the link and they like that because it reduces there off phasebig time.

Todd Copeland

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

Kevin

I am very surprised because they had indicated previouslythat there was no demand for it. Itdoesn’t surprise me at all and I am sure that others will follow DragonWavesleadership position.

Todd Copeland

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

Kevin

I wouldn’t say that I would say the RFP’s are always that specificabout whether or not they want an all outdoor - sometimes they are Todd, sometimesa customer is very specific he says, “Look I want an all outdoor unit becausemy 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 productat 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 thisproduct? 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 12month development cycle?

Peter Allen

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

Todd Copeland

Two other quick questions, when you think about ClearWire sortof dealing with the suspension and ultimately jump starting that, whatmilestone should we be watching for to see that that is either still stalled orperhaps getting back on track?

Peter Allen

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

Todd Copeland

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

Peter Allen

They have publicly said that they are - one, of the reasonthat they agreed with Sprint to terminate the letter of intent was in orderthat they could go on and pursue other partnership opportunities. That has been a public statement of theirsand I have no further insight into that but I certainly expect that that iswhat 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 perspectivebut, maybe if you could just highlight what you think are going to be your mostimportant 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 spectrumthat has been licensed in Western Europe and I thinksome of those networks will move towards construction during 2008. Ourthrust is to go further into Eastern Europe and there areinteresting 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 ofboth pan regional and national customers.

Operator

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

Peter [Mesick]

A couple of things, I think it was asked but just toelaborate on the margin structure what sort of longer term gross margin do youthink is feasible in the business? Thatwould be my first question and then I have some competitive and marketdynamics.

Russell Frederick

Peter we have always said that we were targeting to get thebusiness 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 willhappen. You can see the trajectory andthat continues to be our goal.

Peter [Mesick]

Okay. In terms of marketactivity, I know everyone has asked you about international etc. but, let’s justwalk through some specifics. Vodafone apparently is doing a big E1replacement trial and has talked about removing about 40% of the cost. Have you seen any E1 or T1 replacements yetfor existing cellular networks?

Peter Allen

That is not anapplication that we are particularly focused on Peter. We have seen a lot of activity from Vodafone aboutthere next generation network but, in terms of the lower capacity lease linereplacements, no.

Peter [Mesick]

Maybe not lower capacity but as far as I understood they arepotentially also looking at, for example, HSPPA removing or consolidating leaselines for that. But, maybe we can alsotalk about AT&T and their 700 MGZ spectrum. They bought some spectrum from Aloha; we are also going to have some additionalspectrum 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 isnot quite clear to me what really is what really. We certainly have seen them acquire spectrumas you’ve indicated. They still havesome spectrum from the acquisition of BellSouth as well and I do see activityinside AT&T trying to think about what to do with that spectrum. I also see activity around getting off leaselines out of territory. I also know thatin 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 mostimportant in AT&T and which ones are the most important in the short termis not quite clear to me. But, certainlyI would say that I think AT&T investment in spectrum indicates a strategyto be doing something with that spectrum. $2.5 billion dollars is a lot ofmoney and I doubt that they would have bought it to keep it on the shelf.

Operator

Thank you. Your nextquestion comes from David Hudson. Pleasego ahead.

David Hudson – BKFAsset Management

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

Peter Allen

As I said, I think the soft launches have gone out withproperty on there back of their existing lease line infrastructure wherever ifthey 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 byfiber and scaling lease lines is not an economic and operational oroption. So I think the vast majoritywill be wireless backhaul.

David Hudson – BKFAsset Management

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

Peter Allen

For 100 million pops?

David Hudson – BKFAsset 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. (Operatorinstructions) Your next question comes from [Kathy Rissick]. Please go ahead.

[Kathy Rissick]

I wanted to just come back to gross margin a little bit andtalk a bit more short term. I noticedthat year-over-year, and I may have missed a one time item Q3 fiscal 2007 wasup about this high. Was there something,like you have been talking about a trajectory just looking forward over thenext couple of quarters and how much Horizon might increase as a percentage ofthe revenues? May we expect sort of aseasonal drop back down? What would yoube 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 unusualitem. We had one contract manufacturerthat was discontinued and so there was some residual inventory that we wereable to purchase at relatively low prices so that favorable variance fed intolast Q3. If you take that out thosemargins were down into the 33 or 34 so you can see the increase year-to-year isactually quite significant once you take that item out.

[Kathy Rissick]

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

Russell Frederick

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

[Kathy Rissick]

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

Peter Allen

I think it does have a slightly different margin, I don’tthink it is material. And, I think youwill see the Unite capability migrate into the Horizon family as well. So, what Unite represents is the ability for serviceproviders to converge their networks. Get the benefit of Ethernet, the economics flexibility of Ethernettransport but still be able to support legacy services. And, that is going to be an increased featureof our requirement as we move towards more of the legacy service providers andso, it makes sense of course to make sure we migrate that capability into ourvery newest platforms and that is what we will do.

[Kathy Rissick]

Then, just a little lower down on the op backs, your salesand marketing probably popped up a little bit higher than I might have beenexpecting. You commented about a coupleof new offices and a new sales professional and they sort of all baked into Q3and I noticed that it does come down as a percent of revenue but, how should wethink 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 beentrying to do done a little earlier and therefore we had the cost for a littlebit longer than we planned.

[Kathy Rissick]

Just last one and I may have missed it. Did you talk about 10% customer and what thatnumber 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 havea great year.

Operator

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

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

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