DragonWave Inc. (symbol DWI on Toronto; www.dragonwaveinc.com) makes equipment that wirelessly transmits broadband voice, video and other data. That lets customers send and receive data in places that fibre optic networks haven’t yet reached.
The company’s clients are mainly high-speed Internet and wireless providers. It also sells to organizations that operate their own networks, such as universities, hospitals, cities and businesses.
DragonWave prefers to focus on product design and support; it outsources most of its manufacturing to other firms.
In June 2012, the company paid $18.0 million ($12.7 million in cash and $5.3 million in stock; all amounts except share price and market cap in U.S. dollars) for the microwave transport operations of Nokia Siemens Networks (now called Nokia Solutions and Networks) in China.
As part of the deal, Nokia continues to distribute these products. Sales through Nokia account for about 60% of DragonWave’s total. Other distributors and direct sales provide the remaining 40%.
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Tech stocks: Negative cash flow likely to continue for some time for DragonWave
In the first quarter of its 2015 fiscal year, which ended May 31, 2014, the company’s sales rose 17.3%, to $28.8 million from $24.5 million a year earlier.
However, DragonWave continues to lose money. The company’s net loss was $6.6 million in the latest quarter, unchanged from a loss of $6.6 million a year earlier. The loss per share fell to $0.11 from $0.20, on 53% more shares outstanding. Cash flow was negative $5.2 million, or $0.09 a share, in the latest quarter.
The company’s long-term debt of $17.5 million is equal to 13.9% of its market cap.
DragonWave spent $4.3 million (or 14.8% of its sales) on research in the latest quarter. That’s down 19.6% from $5.3 million (or 21.6%) a year earlier.
As of May 31, 2014, the company held cash of $15.6 million, or $0.33 a share. However, it’s using up its cash at a rate of around $5 million per quarter, so it will eventually have to take on more debt or issue shares at today’s low price to raise funds.
DragonWave operates in highly competitive markets and will likely keep losing money and reporting negative cash flow for some time. What’s more, its uncertain financial outlook could make it harder to attract clients looking for long-term support deals.
We don’t recommend the shares of DragonWave. If you own them, we advise you to sell.
Tomorrow we begin a regular column on our “best Canadian stocks” with an energy stock that’s a buy.
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DragonWave Inc. (symbol DWI on Toronto; www.dragonwaveinc.com) makes equipment that wirelessly transmits broadband voice, video and other data. That lets customers send and receive data in places that fibre optic networks haven’t yet reached.
