DragonWave, Inc. :DRWI-US: Earnings Analysis: Q4, 2016 By the Numbers : May 25, 2016

DragonWave, Inc. reports financial results for the quarter ended February 29, 2016.

We analyze the earnings along side the following peers of DragonWave, Inc. – Ceragon Networks Ltd, Sierra Wireless Inc., CalAmp Corp., Norsat International Inc., Ubiquiti Networks, Inc., LM Ericsson Telefon AB Sponsored ADR Class B, Aviat Networks, Inc., Cisco Systems, Inc. and Nokia Oyj Sponsored ADR (CRNT-US, SWIR-US, CAMP-US, NSAT-US, UBNT-US, ERIC-US, AVNW-US, CSCO-US and NOK-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 12.04 million, Net Earnings of USD -9.13 million.
  • Gross margins narrowed from 17.93% to -4.13% compared to the same period last year, operating (EBITDA) margins now -67.99% from -5.40%.
  • Narrowing of operating margins contributed to decline in earnings.

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

2015-02-28 2015-05-31 2015-08-31 2015-11-30 2016-02-29
Relevant Numbers (Quarterly)
Revenues (mil) 43.74 26.34 26.92 21 12.04
Revenue Growth (%YOY) 144.96 -8.45 -29.04 -55.63 -72.47
Earnings (mil) -2.27 -5.95 -20.97 -6.25 -9.13
Earnings Growth (%YOY) 80.45 10.22 -136.6 -66.32 -302.6
Net Margin (%) -5.18 -22.6 -77.91 -29.75 -75.83
EPS -0.75 -2 -7 -2 -3.02
Return on Equity (%) -19.86 -56.7 -289.24 -155.84 -416.85
Return on Assets (%) -7.52 -20.3 -83.09 -31.72 -59.72

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Market Share Versus Profits

Revenues History
Earnings History

DRWI-US‘s change in revenue this period compared to the same period last year of -72.47% 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 -42.65% and earnings by -46.17% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 17.93% to -4.13%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from -5.40% to -67.99% in this time frame. For comparison, gross margins were 20.44% and EBITDA margins were -15.53% in the previous period.

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 decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 37.72 days from 123.72 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from -6.89% to -67.99% and (2) one-time items that contributed to a decrease in pretax margins from -5.61% to -76.02%

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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