DragonWave, Inc. :DRWI-US: Earnings Analysis: Q1, 2017 By the Numbers : July 22, 2016

DragonWave, Inc. reports financial results for the quarter ended May 31, 2016.

We analyze the earnings along side the following peers of DragonWave, Inc. – CalAmp Corp. and LM Ericsson Telefon AB Sponsored ADR Class B (CAMP-US and ERIC-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 12.55 million, Net Earnings of USD -4.10 million.
  • Gross margins widened from 18.58% to 26.57% compared to the same period last year, operating (EBITDA) margins now -23.12% from -18.76%.
  • Year-on-year change in operating cash flow of 82.99% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-05-31 2015-08-31 2015-11-30 2016-02-29 2016-05-31
Relevant Numbers (Quarterly)
Revenues (mil) 26.34 26.92 21 12.04 12.55
Revenue Growth (%YOY) -8.45 -29.04 -55.63 -72.47 -52.37
Earnings (mil) -5.95 -20.97 -6.25 -9.13 -4.1
Earnings Growth (%YOY) 10.22 -136.6 -66.32 -302.6 31.14
Net Margin (%) -22.6 -77.91 -29.75 -75.83 -32.68
EPS -2 -7 -2 -3.02 -1.23
Return on Equity (%) -56.7 -289.24 -155.84 -416.85 -438.97
Return on Assets (%) -20.3 -83.09 -31.72 -59.72 -32.32

Access our Ratings and Scores for DragonWave, Inc.

Market Share Versus Profits

Revenues History
Earnings History

DRWI-US‘s change in revenue this period compared to the same period last year of -52.37% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that DRWI-US is holding onto its market share. Also, for comparison purposes, revenues changed by 4.19% and earnings by 55.10% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s earnings growth has been influenced by the year-on-year improvement in gross margins from 18.58% to 26.57%. However the company’s overhead costs have prevented it from fully capitalizing on these gross margin improvements. In fact, the company’s operating margins (EBITDA margins) showed no improvement over the same period last year.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

DRWI-US‘s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days have declined to 4.81 days from 201.55 days for the same period last year.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

DRWI-US‘s change in operating cash flow of 82.99% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth


Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for DragonWave, Inc.

Company Profile

DragonWave, Inc. engages in the development and provision of packet microwave solutions. Its products include hybrid microwave, small cell solutions, network management, and packet microwave. It offers mobile backhaul, small cell networks, intelligence networks, infrastructure monitoring, last-mile fiber extension, and rural cellular backhaul services. The company was founded by Erik Boch and Dave Farrar on February 24, 2000 and is headquartered in Ottawa, Canada.

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