WSTL Westell Technologies

Revenue Affected by Carrier Spending Slowdowns

Westell Technologies, Inc. (NASDAQ: WSTL), a leading provider of in-building wireless, intelligent site management, cell site optimization, and outside plant solutions, today announced results for its fiscal 2015 third quarter ended December 31, 2014.

Consolidated revenue was $14.0 million, consisting of $5.4 million from the In-Building Wireless (IBW) segment and $8.6 million from the Communication Solutions Group (CSG) segment.

“As expected, continued capital spending delays by the major North American wireless service providers had a great effect on our fiscal third quarter revenues. However, we are experiencing significantly improved order momentum in early calendar 2015 as the major carriers have clearly begun using their 2015 budgets,” said Rick Gilbert, Chairman and CEO of Westell Technologies. “Despite the unusual nature of the quarter, including a non-cash accounting charge for IBW goodwill, we remain confident that the IBW business unit can provide long-term shareholder value. Additionally, to better position Westell for profitable growth, we are restructuring our business in the fourth fiscal quarter, including reducing headcount and consolidating facilities.”

On a GAAP basis, the Company recorded a net loss in the quarter ended December 31, 2014 of $27.5 million or $0.46 per share, compared to a net loss of $14.6 million or $0.24 per share in the quarter ended September 30, 2014. The current quarter GAAP results included a $20.5 million non-cash charge for the impairment of goodwill in the IBW segment. The prior quarter GAAP results included a $10.6 million non-cash charge for the impairment of goodwill in the CSG segment.

On a non-GAAP basis, the Company recorded a net loss of $4.8 million or $0.08 per share, compared to a non-GAAP net loss of $1.5 million or $0.03 per share in the prior quarter. Please refer to the schedule at the end of this release for a complete GAAP to non-GAAP reconciliation and other information related to non-GAAP measures.

In the fourth quarter of fiscal 2015, Westell is restructuring its business, including headcount reductions and facility consolidation. These actions, which are expected to be completed by March 31, 2015, would result in a fourth quarter pre-tax charge currently estimated at $3.0 million.

Cash and short-term investments were $42.9 million at December 31, 2014, compared to $48.3 million at September 30, 2014. The $5.4 million decrease was driven largely by the net loss in the third quarter.

In-Building Wireless (IBW) Segment

IBW segment revenue was $5.4 million in the quarter ended December 31, 2014, down 51% from $11.1 million in the quarter ended September 30, 2014. The sequential revenue decrease was driven by slowdowns in distributed antenna system (DAS) deployments by the major North American wireless service providers. Gross profit was $1.9 million and gross margin was 35.3%, compared to $4.4 million and 39.3% in the prior quarter. Gross profit and gross margin decreased as a result of the lower revenue. IBW R&D expenses were $2.3 million, compared to $2.1 million in the prior quarter. As a result, IBW segment loss was $0.4 million, compared to segment profit of $2.3 million in the quarter ended September 30, 2014.

Communication Solutions Group (CSG) Segment

CSG segment revenue was $8.6 million in the quarter ended December 31, 2014, down 31% from $12.5 million in the quarter ended September 30, 2014. The sequential revenue decrease was driven by lower sales of tower mounted amplifiers and outside plant solutions, partly offset by an increase in revenues for intelligent site management. Gross profit was $2.5 million and gross margin was 28.8% compared to $3.7 million and 29.5% in the prior quarter. Gross profit and gross margin decreased due to the lower overall revenue, partly offset by a more favorable mix. CSG R&D expenses were $2.0 million, compared to $2.2 million in the prior quarter. As a result, CSG segment profit was $0.5 million, compared to $1.5 million in the quarter ended September 30, 2014.

Conference Call Information

Management will address financial and business results during its third quarter conference call on Thursday, February 5, 2015, at 9:30 AM Eastern Time. Participants may register for the call at http://www.conferenceplus.com/westell. After doing so, they will receive a dial-in number, a passcode, and a personal identification number (PIN) that automatically joins them to the audio conference. Those who do not wish to register may participate in the call by dialing +1 (888) 206-4073 no later than 9:15 AM Eastern Time and using confirmation number 38818424.

This news release and related information that may be discussed on the conference call will be posted on the Press Releases section of Westell's website: www.westell.com. An archive of the entire call will be available on the site via Digital Audio Replay by approximately 1:00 PM Eastern Time after the call ends. The replay of the conference also may be accessed by dialing +1 (888) 843-7419 or +1 (630) 652-3042 and entering 7863 007#.

About Westell Technologies

Westell Technologies, Inc., headquartered in Aurora, Illinois, is a leading provider of in-building wireless, intelligent site management, cell site optimization, and outside plant solutions focused on innovation and differentiation at the edge of telecommunication networks, where end users connect. The Company's comprehensive set of products and solutions enable telecommunication service providers, cell tower operators, and other network operators to reduce operating costs and improve network performance. With millions of products successfully deployed worldwide, Westell is a trusted partner for transforming networks into high quality, reliable systems. For more information, please visit www.westell.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained herein that are not historical facts or that contain the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “plan,” “should,” or derivatives thereof and other words of similar meaning are forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, product demand and market acceptance risks, customer spending patterns, need for financing and capital, economic weakness in the United States (“U.S.”) economy and telecommunications market, the effect of international economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), the impact of competitive products or technologies, competitive pricing pressures, customer product selection decisions, product cost increases, component supply shortages, new product development, excess and obsolete inventory, commercialization and technological delays or difficulties (including delays or difficulties in developing, producing, testing and selling new products and technologies), the ability to successfully consolidate and rationalize operations, the ability to successfully identify, acquire and integrate acquisitions, the effect of the Company's accounting policies, retention of key personnel and other risks more fully described in the Company's SEC filings, including the Form 10-K for the fiscal year ended March 31, 2014, under Item 1A - Risk Factors. The Company undertakes no obligation to publicly update these forward-looking statements to reflect current events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events, or otherwise.

Financial Tables to Follow:

Westell Technologies, Inc.

Condensed Consolidated Statement of Operations

(Amounts in thousands, except per share amounts)

(Unaudited)

    Three months ended December 31,   Nine months ended December 31, 2014   2013

(adjusted) (1)

2014   2013

(adjusted) (1)

Revenue $ 14,043 $ 25,236 $ 65,514 $ 77,652 Gross profit 4,395 11,932 22,144 32,371 Gross margin 31.3 % 47.3 % 33.8 % 41.7 % Operating expenses: Sales and marketing 2,719 3,205 9,064 9,749 Research and development 4,353 2,527 13,128 7,845 General and administrative 2,797 3,402 9,131 10,200 Intangible amortization 1,562 737 4,857 3,588 Restructuring — 38 55 273 Goodwill impairment   20,547     —     31,102   —   Total operating expenses   31,978     9,909     67,337   31,655   Operating income (loss) (27,583 ) 2,023 (45,193 ) 716 Other income (expense), net   (29 )   (31 )   16   (63 ) Income (loss) before income taxes and discontinued operations (27,612 ) 1,992 (45,177 ) 653 Income tax benefit (expense)   72     (38 )   170   (125 ) Net income (loss) from continuing operations   (27,540 )   1,954     (45,007 ) 528   Loss from discontinued operations, net of income tax   —     (29 )   —   (39 ) Net income (loss) $ (27,540 ) $ 1,925   $ (45,007 ) $ 489   Basic net income (loss) per share: Basic net income (loss) from continuing operations $ (0.46 ) $ 0.03 $ (0.75 ) $ 0.01 Basic net income (loss) from discontinued operations   —     —     —   —   Basic net income (loss) per share $ (0.46 ) $ 0.03   $ (0.75 ) $ 0.01   Diluted net income (loss) per share: Diluted net income (loss) from continuing operations $ (0.46 ) $ 0.03 $ (0.75 ) $ 0.01 Diluted net income (loss) from discontinued operations   —     —     —   —   Diluted net income (loss) per share $ (0.46 ) $ 0.03   $ (0.75 ) $ 0.01   Weighted-average number of common shares outstanding: Basic 60,016 58,834 59,885 58,678 Diluted 60,016 60,650 59,885 59,765 (1) In the first quarter of fiscal year 2015, the Company voluntarily changed its method of accounting for the classification of costs related to shipping and handling to cost of revenue. In previous periods, these shipping and handling costs were included as a component of sales and marketing expenses. Previously reported amounts for fiscal year 2014 have been restated to reflect this change. The Company filed the preferability letter regarding the change in accounting principle as an exhibit to its June 30, 2014 Form 10-Q.

Westell Technologies, Inc.

Condensed Consolidated Balance Sheet

(Amounts in thousands)

(Unaudited)

    December 31, 2014 March 31, 2014

(adjusted) (1)

Assets Cash and cash equivalents $ 17,699 $ 35,793 Short-term investments 25,222 15,584 Accounts receivable, net 7,132 15,831 Inventories 22,909 24,056 Prepaid expenses and other current assets 2,729 1,952 Deferred income taxes 875 899 Land available-for-sale   1,044   1,044 Total current assets   77,610   95,159 Property and equipment, net 2,934 1,901 Goodwill — 31,102 Intangible assets, net 27,461 32,319 Other non-current assets   250   393 Total assets $ 108,255 $ 160,874 Liabilities and Stockholders’ Equity Accounts payable $ 4,536 $ 7,067 Accrued expenses 4,042 7,813 Contingent consideration 727 2,067 Deferred revenue   519   1,774 Total current liabilities 9,824 18,721 Deferred revenue non-current 772 787 Deferred income tax liability 1,045 1,072 Contingent consideration non-current 811 574 Other non-current liabilities   527   528 Total liabilities 12,979 21,682 Total stockholders’ equity   95,276   139,192 Total liabilities and stockholders’ equity $ 108,255 $ 160,874 (1) Certain amounts relating to the CSI acquisition have been adjusted to reflect measurement period adjustments (See Form 10-Q to be filed for the period ended December 31, 2014 for additional information).

Westell Technologies, Inc.

Condensed Consolidated Statement of Cash Flows

(Amounts in thousands)

(Unaudited)

  Nine months ended December 31, 2014   2013 Cash flows from operating activities: Net income (loss) $ (45,007 ) $ 489 Reconciliation of net loss to net cash used in operating activities: Depreciation and amortization 5,599 4,037 Goodwill impairment 31,102 — Stock-based compensation 1,628 1,293 Restructuring 55 273 Other 8 96 Changes in assets and liabilities: Accounts receivable 8,699 (1,614 ) Inventory 1,147 (3,276 ) Accounts payable and accrued expenses (6,058 ) 633 Deferred revenue (1,270 ) (1,989 ) Other   (634 )   749   Net cash provided by (used in) operating activities   (4,731 )   691   Cash flows from investing activities: Net (purchases) sales of short-term investments and debt securities (9,638 ) 7,190 Payment for business acquisitions, net (304 ) (28,945 ) Purchases of property and equipment, net (1,773 ) (399 ) Changes in restricted cash   —     2,500   Net cash used in investing activities   (11,715 )   (19,654 ) Cash flows from financing activities: Purchase of treasury stock (692 ) (319 ) Proceeds from stock options exercised 155 718 Payment of contingent consideration   (1,104 )   —   Net cash used in financing activities   (1,641 )   399   Effect of exchange rate changes on cash   (7 )   (20 ) Net decrease in cash (18,094 ) (18,584 ) Cash and cash equivalents, beginning of period   35,793     88,233   Cash and cash equivalents, end of period $ 17,699   $ 69,649  

Westell Technologies, Inc.

Segment Statement of Operations

(Amounts in thousands)

(Unaudited)

    Three months ended December 31, 2014 CSG   IBW   Total Revenue $ 8,629 $ 5,414 $ 14,043 Gross profit 2,485 1,910 4,395 Gross margin 28.8 % 35.3 % 31.3 % Research and development   2,011     2,342     4,353   Segment profit (loss)   474     (432 ) 42 Operating expenses: Sales and marketing 2,719 General and administrative 2,797 Intangible amortization 1,562 Restructuring — Goodwill impairment   20,547   Operating income (loss) (27,583 ) Other income (expense), net (29 ) Income tax benefit (expense)   72   Net income (loss) from continuing operations $ (27,540 )   Three months ended December 31, 2013 (adjusted) CSG IBW Total Revenue $ 23,425 $ 1,811 $ 25,236 Gross profit 11,388 544 11,932 Gross margin 48.6 % 30.0 % 47.3 % Research and development   2,347     180     2,527   Segment profit $ 9,041   $ 364   9,405 Operating expenses: Sales and marketing 3,205 General and administrative 3,402 Intangible amortization 737 Restructuring   38   Operating income (loss) 2,023 Other income (expense), net (31 ) Income tax benefit (expense)   (38 ) Net income (loss) from continuing operations $ 1,954     Nine months ended December 31, 2014 CSG

IBW

Total

Revenue $ 34,882 $ 30,632 $ 65,514 Gross profit 10,055 12,089 22,144 Gross margin 28.8 %

39.5

%

33.8

%

Research and development   6,488     6,640     13,128   Segment profit   3,567     5,449   9,016 Operating expenses: Sales and marketing 9,064 General and administrative 9,131 Intangible amortization 4,857 Restructuring 55 Goodwill impairment   31,102   Operating income (loss) (45,193 ) Other income (expense), net 16 Income tax benefit (expense)   170   Net income (loss) from continuing operations $ (45,007 )   Nine months ended December 31, 2013 (adjusted) CSG IBW Total Revenue $ 72,774 $ 4,878 $ 77,652 Gross profit 30,797 1,574 32,371 Gross margin 42.3 % 32.3 % 41.7 % Research and development   7,292     553     7,845   Segment profit $ 23,505   $ 1,021   24,526 Operating expenses: Sales and marketing 9,749 General and administrative 10,200 Intangible amortization 3,588 Restructuring   273   Operating income (loss) 716 Other income (expense), net (63 ) Income tax benefit (expense)   (125 ) Net income (loss) from continuing operations $ 528  

Westell Technologies, Inc.

Reconciliation of GAAP to non-GAAP Financial Measures

(Amounts in thousands, except per share amounts)

(Unaudited)

    Three months ended December 31, Nine months ended December 31, 2014   2013 2014   2013 GAAP net income (loss) $ (27,540 ) $ 1,925 $ (45,007 ) $ 489 Adjustments: Inventory fair value step-up (1) 79 82 540 1,327 Deferred revenue adjustment (1) 64 825 322 1,920 Goodwill impairment (2) 20,547 — 31,102 — Amortization of intangibles (3) 1,562 737 4,857 3,588 Restructuring (4) — 38 55 273 Stock-based compensation (5) 514 553 1,628 1,293 (Income) loss from discontinued operations   —     29   —     39 Total adjustments   22,766     2,264   38,504     8,440 Non-GAAP net income (loss) $ (4,774 ) $ 4,189 $ (6,503 ) $ 8,929 GAAP net income (loss) per common share: Basic $ (0.46 ) $ 0.03 $ (0.75 ) $ 0.01 Diluted $ (0.46 ) $ 0.03 $ (0.75 ) $ 0.01 Non-GAAP net income (loss) per common share: Basic $ (0.08 ) $ 0.07 $ (0.11 ) $ 0.15 Diluted $ (0.08 ) $ 0.07 $ (0.11 ) $ 0.15 Average number of common shares outstanding: Basic 60,016 58,834 59,885 58,678 Diluted 60,016 60,650 59,885 59,765   Three Months Ended December 31, 2014   Three Months Ended September 30, 2014 Revenue   Gross Profit   Gross Margin Revenue   Gross Profit   Gross Margin GAAP - Consolidated $ 14,043 $ 4,395 31.3 % $ 23,646 $ 8,065 34.1 % Deferred revenue adjustment (1) 64 64 112 112 Inventory fair value step-up (1) — 79 — 206 Stock-based compensation (5)   —   22   —   25 Non-GAAP - Consolidated $ 14,107 $ 4,560 32.3 % $ 23,758 $ 8,408 35.4 %   Three months ended December 31,   Nine months ended December 31, 2014   2013 (adjusted) 2014   2013 (adjusted) GAAP operating expenses $ 31,978 $ 9,909 $ 67,337   $ 31,655 Adjustments: Goodwill impairment (2) (20,547 ) — (31,102 ) — Amortization of intangibles (3) (1,562 ) (737 ) (4,857 ) (3,588 ) Restructuring (4) — (38 ) (55 ) (273 ) Stock-based compensation (5)   (492 )   (534 )   (1,563 )     (1,258 ) Total adjustments   (22,601 )   (1,309 )   (37,577 )     (5,119 ) Non-GAAP operating expenses $ 9,377   $ 8,600   $ 29,760     $ 26,536   The Company conforms to U.S. Generally Accepted Accounting Principles (GAAP) in the preparation of its financial statements. The schedules above reconcile the Company's non-GAAP financial measures to the most directly comparable GAAP measure. The adjustments share one or more of the following characteristics: they are unusual and the Company does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of the Company's control. Management believes that these non-GAAP results provide meaningful supplemental information to investors and indicate the Company's core performance and that they facilitate comparison of results across reporting periods. The Company uses these non-GAAP measures when evaluating its financial results. Non-GAAP measures should not be viewed as a substitute for the Company's GAAP results.     (1)   On April 1, 2013 and March 1, 2014, the Company purchased Kentrox and Cellular Specialties, Inc. (CSI), respectively. These acquisitions required the step-up of certain assets to fair value, which resulted in cost that will not recur once those assets have fully settled. The adjustments remove the increased costs associated with the third-party sales of inventory that was stepped-up and the step-down on acquired deferred revenue that was recognized. (2)

The Company recorded a non-cash charge during the third quarter of fiscal 2015 to record the impairment of the full carrying value of the Company's goodwill related to the CSI acquisition. During the second quarter of fiscal 2015, the Company recorded a non-cash charge to record the impairment of the full carrying value of the Company's goodwill related to the Kentrox acquisition. Based on financial market considerations, a history of recent losses and other factors, the Company's goodwill did not pass a two-step goodwill impairment valuation test, resulting in the impairment charges.

(3) Amortization of intangibles is a non-cash expense arising from the acquisition of intangible assets. (4) Restructuring expenses are not directly related to the ongoing performance of our fundamental business operations. (5) Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.

Westell Technologies, Inc.Tom Minichiello, +1 (630) 375 4740Chief Financial Officertminichiello@westell.com