WSTL Westell Technologies

Sequential revenue growth of 18% and gross margin of 40%

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 2016 second quarter ended September 30, 2015.

Consolidated revenue was $25.5 million, consisting of $10.8 million from the In-Building Wireless (IBW) segment and $14.7 million from the Communication Solutions Group (CSG) segment. Both IBW and CSG segment revenues were up sequentially, increasing 19% and 18%, respectively.

“We made good progress in the fiscal second quarter in executing our growth and operational turnaround strategy. We achieved solid top and bottom line improvements, including double-digit sequential revenue increases for our intelligent site management and tower-mounted amplifier product lines,” said Tom Gruenwald, Chairman and CEO of Westell Technologies. “Our non-GAAP operating expenses rose this quarter as we are making the necessary changes in our sales organization to increase customer engagement, and we also recently appointed a Chief Technology Officer to guide our product evolution strategy. These are important investments that position Westell to expand market opportunities and drive future revenue growth.”

On a GAAP basis, the Company recorded a net loss in the quarter ended September 30, 2015 of $2.5 million or $0.04 per share, compared to a net loss of $3.9 million or $0.06 per share in the quarter ended June 30, 2015. On a non-GAAP basis, the Company recorded a net loss in the quarter ended September 30, 2015 of $0.7 million or $0.01 per share, compared to a non-GAAP net loss of $2.0 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.

Cash and short-term investments were $36.4 million at September 30, 2015, compared to $36.9 million at June 30, 2015. The net cash use during the quarter was primarily the result of capital expenditures associated with our ClearLink DAS project, partly offset by positive operating cash flow due to a reduced net loss and lower inventory.

In-Building Wireless (IBW) Segment

IBW segment revenue was $10.8 million in the quarter ended September 30, 2015, up 19% from $9.1 million in the quarter ended June 30, 2015. The sequential increase was driven by higher revenues across all product categories - DAS conditioners, repeaters, and ancillary products - and included record quarterly sales of our active DAS conditioner, the Universal DAS Interface Tray (UDIT). Gross profit was $4.5 million and gross margin was 42.0%, compared to $4.0 million and 44.1% in the prior quarter. Gross profit increased due to the higher revenue while gross margin decreased slightly due to a less favorable mix. IBW R&D expenses were $2.8 million, compared to $3.2 million in the prior quarter. As a result, IBW segment profit was $1.8 million, compared to segment profit of $0.8 million in the quarter ended June 30, 2015.

Communication Solutions Group (CSG) Segment

CSG segment revenue was $14.7 million in the quarter ended September 30, 2015, up 18% from $12.5 million in the quarter ended June 30, 2015. The sequential increase was driven by higher revenues across all product categories - intelligent site management (ISM), tower mounted amplifiers, and outside plant solutions - including the highest quarterly revenue level for ISM since December 2013. Gross profit was $5.7 million and gross margin was 38.7% compared to $4.4 million and 35.4% in the prior quarter. Gross profit and gross margin increased due primarily to the higher revenue. CSG R&D expenses were $1.9 million in both the current and prior quarter. As a result, CSG segment profit was $3.8 million, compared to $2.5 million in the quarter ended June 30, 2015.

Conference Call Information

Management will discuss financial and business results during the quarterly conference call on Thursday, October 29, 2015 at 9:30 AM Eastern Time. Investors may quickly register online in advance of the call at https://www.conferenceplus.com/westell. After registering, participants receive dial-in numbers, a passcode and a registration ID that is used to uniquely identify their presence and automatically join them into the audio conference. A participant may also register by telephone on October 29 by calling 888-206-4073 no later than 9:15 AM Eastern Time (8:15 AM Central Time) and providing the operator confirmation number 40912997.

This news release and related information that may be discussed on the conference call, will be posted on the Investor Relations section of Westell's website: http://www.westell.com. A digital recording of the entire conference will be available for replay on Westell's website by approximately 1:00 PM Eastern Time following the conclusion of the conference.

About Westell Technologies

Westell Technologies, Inc. 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 and other network operators to improve network performance and reduce operating expenses. 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, 2015, 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   Six months ended September 30,   June 30,   September 30, September 30,   September 30, 2015 2015 2014 (1) 2015 2014 (1) Revenue $ 25,514 $ 21,570 $ 23,646 $ 47,084 $ 51,471 Gross profit 10,231 8,429 8,065 18,660 17,749 Gross margin 40.1 % 39.1 % 34.1 % 39.6 % 34.5 % Operating expenses: Research and development 4,625 5,086 4,300 9,711 8,775 Sales and marketing 4,026 3,196 2,924 7,222 6,345 General and administrative 2,580 2,969 3,280 5,549 6,334 Intangible amortization 1,432 1,399 1,710 2,831 3,295 Restructuring — 17 (2 ) 17 55 Goodwill impairment (2) —   —   11,450   —   11,450   Total operating expenses 12,663   12,667   23,662   25,330   36,254   Operating income (loss) (2,432 ) (4,238 ) (15,597 ) (6,670 ) (18,505 ) Other income (expense), net (61 ) 38   (16 ) (23 ) 45   Income (loss) before income taxes and discontinued operations (2,493 ) (4,200 ) (15,613 ) (6,693 ) (18,460 ) Income tax benefit (expense) 20   62   69   82   98   Net income (loss) from continuing operations (2,473 ) (4,138 ) (15,544 ) (6,611 ) (18,362 ) Income from discontinued operations (3) —   272   —   272   —   Net income (loss) $ (2,473 ) $ (3,866 ) $ (15,544 ) $ (6,339 ) $ (18,362 ) Basic net income (loss) per share: Basic net income (loss) from continuing operations $ (0.04 ) $ (0.07 ) $ (0.26 ) $ (0.11 ) $ (0.31 ) Basic net income (loss) from discontinued operations —   —   —   —   —   Basic net income (loss) $ (0.04 ) $ (0.06 ) $ (0.26 ) $ (0.10 ) $ (0.31 ) Diluted net income (loss) per share: Diluted net income (loss) from continuing operations $ (0.04 ) $ (0.07 ) $ (0.26 ) $ (0.11 ) $ (0.31 ) Diluted net income (loss) from discontinued operations —   —     —   —   —   Diluted net income (loss) $ (0.04 ) $ (0.06 ) $ (0.26 ) $ (0.10 ) $ (0.31 ) Weighted-average number of common shares outstanding: Basic 60,783 60,703 59,924 60,743 59,819 Diluted 60,783 60,703 59,924 60,743 59,819  

(1)

 

Reflects unaudited adjustment to correct previously unidentified error.

(2)

The Company recorded a non-cash charge during the second quarter of fiscal year 2015 to record the impairment of the full carrying value of the Company's goodwill related to the Kentrox acquisition.

(3)

Income from discontinued operations resulted from the expiration of indemnity periods and release of contingency reserves related to the sale of ConferencePlus.

(4)

Totals may not sum due to rounding.

  Westell Technologies, Inc. Condensed Consolidated Balance Sheet

(Amounts in thousands)

(Unaudited)

    September 30, 2015   March 31, 2015 (1) Assets Cash and cash equivalents $ 32,878 $ 14,026 Short-term investments 3,476 23,906 Accounts receivable, net 17,130 11,845 Inventories 12,196 16,205 Prepaid expenses and other current assets 2,470 3,285 Deferred income taxes 1,030 1,043 Land held-for-sale —   264 Total current assets 69,180   70,574 Property and equipment, net 4,468 3,603 Intangible assets, net 23,110 25,942 Other non-current assets 140   258 Total assets $ 96,898   $ 100,377 Liabilities and Stockholders’ Equity Accounts payable $ 7,643 $ 4,011 Accrued expenses 6,203 5,576 Accrued restructuring 1,092 1,161 Contingent consideration payable 1,030 1,184 Deferred revenue 1,217   2,415 Total current liabilities 17,185 14,347 Deferred revenue non-current 1,104 751 Deferred income tax liability 1,133 1,089 Accrued restructuring non-current 1,099 1,642 Contingent consideration payable non-current — 400 Other non-current liabilities 352   409 Total liabilities 20,873 18,638 Total stockholders’ equity 76,025   81,739 Total liabilities and stockholders’ equity $ 96,898   $ 100,377

(1) Reflects unaudited adjustment to correct previously unidentified error.

  Westell Technologies, Inc. Condensed Consolidated Statement of Cash Flows

(Amounts in thousands)

(Unaudited)

    Six months ended September 30, 2015   2014 (1) Cash flows from operating activities: Net income (loss) $ (6,339 ) $ (18,362 ) Reconciliation of net loss to net cash used in operating activities: Depreciation and amortization 3,495 3,755 Goodwill impairment — 11,450 Stock-based compensation 710 1,114 Restructuring 17 55 Deferred taxes 57 (28 ) Exchange rate loss 60 4 Changes in assets and liabilities: Accounts receivable (5,342 ) 3,890 Inventory 4,009 1,793 Accounts payable and accrued expenses 3,476 (3,229 ) Deferred revenue (845 ) (642 ) Other 933   (14 ) Net cash provided by (used in) operating activities 231   (214 ) Cash flows from investing activities: Net maturity (purchase) of short-term investments and debt securities 20,430 (4,786 ) Acquisitions, net of cash acquired — (304 ) Proceeds from sale of land 264 — Purchases of property and equipment, net (1,530 ) (1,155 ) Net cash provided by (used in) investing activities 19,164   (6,245 ) Cash flows from financing activities: Purchase of treasury stock (85 ) (688 ) Proceeds from stock options exercised — 155 Payment of contingent consideration (455 ) (879 ) Net cash provided by (used in) financing activities (540 ) (1,412 ) (Gain) loss of exchange rate changes on cash (3 ) (2 ) Net increase (decrease) in cash and cash equivalents 18,852 (7,873 ) Cash and cash equivalents, beginning of period 14,026   35,793   Cash and cash equivalents, end of period $ 32,878   $ 27,920  

(1) Reflects unaudited adjustment to correct previously unidentified error.

  Westell Technologies, Inc. Segment Statement of Operations

(Amounts in thousands)

(Unaudited)

 

Sequential Quarter Comparison

    Three months ended September 30, 2015   Three Months Ended June 30, 2015 IBW   CSG   Total IBW   CSG   Total Revenue $ 10,819 $ 14,695 $ 25,514 $ 9,070 $ 12,500 $ 21,570 Cost of revenue 6,272   9,011   15,283   5,069   8,072   13,141   Gross profit 4,547 5,684 10,231 4,001 4,428 8,429 Gross margin 42.0 % 38.7 % 40.1 % 44.1 % 35.4 % 39.1 % Research and development 2,775   1,850   4,625   3,162   1,924   5,086   Segment profit (loss) $ 1,772   $ 3,834   $ 5,606   $ 839   $ 2,504   $ 3,343    

Year ago Quarter Comparison

    Three months ended September 30, 2015   Three Months Ended September 30, 2014 IBW   CSG   Total IBW   CSG   Total Revenue $ 10,819 $ 14,695 $ 25,514 $ 11,121 $ 12,525 $ 23,646 Cost of revenue 6,272   9,011   15,283   6,753   8,828   15,581   Gross profit 4,547 5,684 10,231 4,368 3,697 8,065 Gross margin 42.0 % 38.7 % 40.1 % 39.3 % 29.5 % 34.1 % Research and development 2,775   1,850   4,625   2,103   2,197   4,300   Segment profit (loss) $ 1,772   $ 3,834   $ 5,606   $ 2,265   $ 1,500   $ 3,765    

Year-to-Date Comparison

    Six months ended September 30, 2015 Six months ended September 30, 2014 IBW   CSG   Total IBW   CSG   Total Revenue $ 19,889 $ 27,195 $ 47,084 $ 25,218 $ 26,253 $ 51,471 Cost of revenue 11,341   17,083   28,424   15,039   18,683   33,722   Gross profit 8,548 10,112 18,660 10,179 7,570 17,749 Gross margin 43.0 % 37.2 % 39.6 % 40.4 % 28.8 % 34.5 % Research and development 5,937   3,774   9,711   4,298   4,477   8,775   Segment profit (loss) $ 2,611   $ 6,338   $ 8,949   $ 5,881   $ 3,093   $ 8,974     Westell Technologies, Inc. Reconciliation of GAAP to non-GAAP Financial Measures

(Amounts in thousands, except per share amounts)

(Unaudited)

    Three months ended   Six months ended Sept. 30,   June 30,   Sept. 30, Sept. 30,   Sept. 30, 2015 2015 2014 (1) 2015 2014 (1) GAAP net income (loss) $ (2,473 ) $ (3,866 ) $ (15,544 ) $ (6,339 ) $ (18,362 ) Adjustments: Inventory fair value step-up (2) — — 206 — 462 Deferred revenue adjustment (2) 73 73 112 146 258 Goodwill impairment (3) — — 11,450 — 11,450 Amortization of intangibles (4) 1,432 1,399 1,710 2,831 3,295 Restructuring, separation, and transition (5) 59 164 (2 ) 223 55 Stock-based compensation (6) 253 457 560 710 1,114 (Income) loss from discontinued operations (7) —   (272 ) —   (272 ) —   Total adjustments 1,817   1,821   14,036   3,638   16,634   Non-GAAP net income (loss) $ (656 ) $ (2,045 ) $ (1,508 ) $ (2,701 ) $ (1,728 ) GAAP net income (loss) per common share: Basic $ (0.04 ) $ (0.06 ) $ (0.26 ) $ (0.10 ) $ (0.31 ) Diluted $ (0.04 ) $ (0.06 ) $ (0.26 ) $ (0.10 ) $ (0.31 ) Non-GAAP net income (loss) per common share: Basic $ (0.01 ) $ (0.03 ) $ (0.03 ) $ (0.04 ) $ (0.03 ) Diluted $ (0.01 ) $ (0.03 ) $ (0.03 ) $ (0.04 ) $ (0.03 ) Average number of common shares outstanding: Basic 60,783 60,703 59,924 60,743 59,819 Diluted 60,783 60,703 59,924 60,743 59,819     Three Months Ended September 30, 2015 Three Months Ended June 30, 2015 Revenue   Gross Profit   Gross Margin Revenue   Gross Profit   Gross Margin GAAP - Consolidated $ 25,514 $ 10,231 40.1 % $ 21,570 $ 8,429 39.1 % Deferred revenue adjustment (2) 73 73 73 73 Stock-based compensation (6) —   14   —   (3 ) Non-GAAP - Consolidated $ 25,587   $ 10,318   40.3 % $ 21,643   $ 8,499   39.3 %     Three months ended Six months ended September 30,   June 30,   September 30, September 30,   September 30, 2015 2015 2014 (1) 2015 2014 (1) GAAP operating expenses $ 12,663 $ 12,667 $ 23,662 $ 25,330 $ 36,254 Adjustments: Goodwill impairment (3) — — (11,450 ) — (11,450 ) Amortization of intangibles (4) (1,432 ) (1,399 ) (1,710 ) (2,831 ) (3,295 ) Restructuring, separation, and transition (5) (59 ) (164 ) 2 (223 ) (55 ) Stock-based compensation (6) (239 ) (460 ) (535 ) (699 ) (1,071 ) Total adjustments (1,730 ) (2,023 ) (13,693 ) (3,753 ) (15,871 ) Non-GAAP operating expenses $ 10,933   $ 10,644   $ 9,969   $ 21,577   $ 20,383  

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)

   

Reflects unaudited adjustment to correct previously unidentified error.

(2)

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.

(3)

The Company recorded a non-cash charge during the second quarter of fiscal 2015 to record the impairment of the full carrying value of the Company's goodwill related to the Kentrox acquisition.

(4)

Amortization of intangibles is a non-cash expense arising from the acquisition of intangible assets.

(5)

Restructuring expenses are not directly related to the ongoing performance of our fundamental business operations. This adjustment also includes severance benefits related to the departure of certain former executives.

(6)

Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.

(7)

The release of contingent liabilities related to the sale of ConferencePlus are presented as discontinued operations.

 

View source version on businesswire.com: http://www.businesswire.com/news/home/20151028006671/en/

Westell Technologies, Inc.Tom MinichielloChief Financial Officer+1 (630) 375 4740tminichiello@westell.com