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Westell Delivers Profitability and Revenue Growth for Fiscal 2Q18
[November 01, 2017]

Westell Delivers Profitability and Revenue Growth for Fiscal 2Q18


AURORA, Ill., Nov. 01, 2017 (GLOBE NEWSWIRE) -- Westell Technologies, Inc. (NASDAQ:WSTL), a leading provider of high-performance wireless infrastructure solutions, announced results for its fiscal 2018 second quarter ended September 30, 2017 (2Q18).  Management will host a conference call to discuss financial and business results tomorrow, Thursday, November 2, 2017, at 9:30 AM Eastern Time (details below).

Revenue was $17.2 million, the third consecutive quarter of sequential growth, and comprised $7.9 million from the In-Building Wireless (IBW) segment, $4.7 million from the Intelligent Site Management and Services (ISMS) segment, and $4.6 million from the Communication Network Solutions (CNS) segment.

Westell’s President and Chief Executive Officer Matthew B. Brady stated, “Positive GAAP earnings and a greater than twofold sequential improvement of non-GAAP earnings were driven by revenue growth, a healthy gross margin, and continued expense management.  Revenue highlights included the best IBW results since the December 2015 quarter, sequential ISMS growth, and solid CNS performance.”

 2Q18
3 months ended 9/30/17
1Q18
3 months ended 6/30/17
 + favorable /
- unfavorable
Revenue$17.2M$16.6M$+0.6M
Gross Margin 42.2% 40.8% +1.4%
Operating Expenses$7.2M$7.4M+$0.2M
Net Income (Loss)$0.7M($0.6M)+$1.3M
Earnings (Loss) Per Share$0.05 ($0.04)+$0.09 
Non-GAAP Operating Expenses (1)$5.7M$6.0M+$0.3M
Non-GAAP Net Income (1)$1.7M$0.8M+$0.9M
Non-GAAP Earnings Per Share (1)$0.11 $0.05 +$0.06 
Non-GAAP Adjusted EBITDA (1)$1.8M$1.0M+$0.8M
(1)  Please refer to the schedule at the end of this press release for a complete GAAP to non-GAAP reconciliation and other information related to non-GAAP financial measures.

“In fiscal 2Q18, IBW achieved record revenue levels for the Universal DAS Interface Tray (UDIT) product line, as well as for our passive system components, which we sell for both commercial and public safety deployments,” Brady added.  “Moving forward, we are focused on gaining further traction in the IBW public safety market, the evolving Centralized Radio Access Network (CRAN) architecture for our ISMS and CNS solutions, and new opportunities that can deliver consistent and profitable revenue growth.”

Cash and short-term investments were $24.2 million at September 30, 2017, compared to $23.7 million at June 30, 2017.  Efficiencies in inventory management contributed to the $0.7 million of positive operating cash flow.  This was partly offset by $0.2 million of cash used for share repurchases and capital expenditures.

In-Building Wireless (IBW) Segment

IBW’s sequential revenue increase was driven by record quarterly sales of UDIT and passive system components.  IBW’s segment gross margin increase was driven primarily by the increased revenue and an improved cost structure.

 2Q18
3 months ended 9/30/17
1Q18
3 months ended 6/30/17
 + favorable /
- unfavorable
IBW Segment Revenue$7.9M$7.0M+$0.9M
IBW Segment Gross Margin46.1%43.3%+2.8%
IBW Segment R&D Expense$1.4M$1.5M+$0.1M
IBW Segment Profit$2.2M$1.6M+$0.6M

Intelligent Site Management & Services (ISMS) Segment

ISMS’s sequential revenue increase was driven primarily by increased sales of Remote units.  ISMS’s segment gross margin decrease was primarily due to a less favorable mix.

 2Q18
3 months ended 9/30/17
1Q18
3 months ended 6/30/17
 + favorable /
- unfavorable
ISMS Segment Revenue$4.7M$4.1M+$0.6M
ISMS Segment Gross Margin46.9%51.5%-4.6%
ISMS Segment R&D Expense$0.5M$0.6M+$0.1M
ISMS Segment Profit$1.7M$1.6M+$0.1M

Communication Network Solutions (CNS) Segment

CNS’s sequential revenue decrease was primarily driven by lower sales of Integrated Cabinets.  CNS’s gross margin increase was primarily due to a more favorable mix.

 2Q18
3 months ended 9/30/17
1Q18
3 months ended 6/30/17
 + favorable /
- unfavorable
CNS Segment Revenue$4.6M$5.5M-$0.9M
CNS Segment Gross Margin30.7%29.6%+1.1%
CNS Segment R&D Expense$0.2M$0.2M$—M
CNS Segment Profit$1.2M$1.4M-$0.2M

Conference Call Information
Management will discuss financial and business results during the quarterly conference call on Thursday, November 2, 2017, 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 November 2, 2017, by calling 888-206-4073 no later than 8:15 AM Central Time (9:15 AM Eastern Time) and providing the operator confirmation number 45830387.

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: https://ir.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 is a leading provider of high-performance wireless infrastructure solutions focused on innovation and differentiation at the edge of communication networks where end users connect.  The Company's portfolio of products and solutions enable service providers and network operators to improve 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, 2017, 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.

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, 
  2017 2017 2016 2017 2016 
Revenue:           
  Products $16,097  $15,545  $15,881  $31,642  $29,494  
  Services 1,135  1,029  1,899  2,164  3,102  
Total revenue 17,232  16,574  17,780  $33,806  $32,596  
Cost of revenue:           
  Products 9,522  9,424  10,380  18,946  19,981  
  Services 435  383  1,033  818  1,683  
Total cost of revenue 9,957  9,807  11,413  19,764  21,664  
Gross profit 7,275  6,767  6,367  14,042  10,932  
Gross margin 42.2% 40.8% 35.8% 41.5% 33.5% 
Operating expenses:           
R&D 2,205  2,276  3,327  4,481  7,604  
Sales and marketing 1,992  2,336  2,896  4,328  6,277  
General and administrative 1,809  1,711  2,218  3,520  4,563  
Intangible amortization 1,048  1,047  1,201  2,095  2,401  
Restructuring 165 (1)  2,601 (2)165 (1)2,565 (2)
Long-lived assets impairment         1,181 (3)
Total operating expenses 7,219  7,370  12,243  14,589  24,591  
Operating profit (loss) 56  (603) (5,876) (547) (13,659) 
Other income, net 677 (4)43  74  720 (4)91  
Income (loss) before income taxes 733  (560) (5,802) 173  (13,568) 
Income tax expense (13) (12) (8) (25) (10) 
Net income (loss) $720  $(572) $(5,810) $148  $(13,578) 
            
Net income (loss) per share:           
Basic net income (loss) $0.05  $(0.04) $(0.38)(5)$0.01  $(0.89)(5)
Diluted net income (loss) $0.05  $(0.04) $(0.38)(5)$0.01  $(0.89)(5)
Weighted-average number of common shares outstanding:           
Basic 15,461  15,481  15,299 (5)15,471  15,277 (5)
Diluted 15,672  15,481  15,299 (5)15,638  15,277 (5)
  1. 2Q18 restructuring expense related to severance costs for terminated employees.
  2. The Company recorded restructuring expense primarily relating to abandonment of excess office space at its headquarters and in New Hampshire, and severance costs for terminated employees.
  3. 1Q17 non-cash impairment related to long-lived assets associated with the discontinuation of ClearLink DAS.
  4. During the quarter ended September 30, 2017, the Company dissolved the NoranTel legal entity which triggered a one-time $0.6 million foreign currency gain with the reversal of a cumulative translation adjustment.
  5. All common stock, equity, share and per share amounts have been retroactively adjusted to reflect a one-for-four reverse stock split which was effective June 7, 2017.

Westell Technologies, Inc.
Condensed Consolidated Balance Sheet
(Amounts in thousands)

  September 30, 2017 (Unaudited) March 31, 2017
Assets    
Cash and cash equivalents $19,200  $21,778 
Short-term investments 5,011   
Accounts receivable, net 11,038  12,075 
Inventories 9,983  12,511 
Prepaid expenses and other current assets 1,034  1,409 
Total current assets 46,266  47,773 
Land, property and equipment, net 1,798  1,984 
Intangible assets, net 13,529  15,624 
Other non-current assets 87  160 
Total assets $61,680  $65,541 
Liabilities and Stockholders’ Equity    
Accounts payable $3,210  $4,163 
Accrued expenses 3,823  4,273 
Accrued restructuring 415  1,171 
Deferred revenue 1,055  2,359 
Total current liabilities 8,503  11,966 
Deferred revenue non-current 929  1,102 
Accrued restructuring non-current   63 
Other non-current liabilities 317  236 
Total liabilities 9,749  13,367 
Total stockholders’ equity 51,931  52,174 
Total liabilities and stockholders’ equity $61,680  $65,541 

Westell Technologies, Inc.
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)

  Three months ended September 30, Six months
 ended
 September 30,
 
  2017 2017 2016 
Cash flows from operating activities:   
Net income (loss) $720  $148  $(13,578) 
Reconciliation of net loss to net cash used in operating activities:       
Depreciation and amortization 1,249  2,526  3,230  
Long-lived assets impairment     1,181 (1)
Stock-based compensation 342  672  1,093  
Loss on sale of fixed assets 8  8  11  
Restructuring 165  165  2,565  
Deferred taxes (7)   14  
Gain on disposal of foreign operations (608)(2)(608)(2)  
Exchange rate loss (gain) (2) (6)   
Changes in assets and liabilities:       
Accounts receivable (723) 1,025  2,722  
Inventory 2,207  2,528  820  
Accounts payable and accrued expenses (2,269) (2,082) (4,800) 
Accrued compensation 183  (224) (1,109) 
Deferred revenue (800) (1,477) (131) 
Prepaid expenses and other current assets 147  375  (23) 
Other assets 66  73  15  
Net cash provided by (used in) operating activities 678  3,123  (7,990) 
Cash flows from investing activities:       
Net maturity (purchase) of short-term investments (5,011) (5,011) 10,555  
Purchases of property and equipment, net (99) (254) (498) 
Net cash provided by (used in) investing activities (5,110) (5,265) 10,057  
Cash flows from financing activities:       
Purchase of treasury stock (82) (456) (141) 
Payment of contingent consideration     (175) 
Net cash provided by (used in) financing activities (82) (456) (316) 
Gain (loss) of exchange rate changes on cash 26  20  (3) 
Net increase (decrease) in cash and cash equivalents (4,488) (2,578) 1,748  
Cash and cash equivalents, beginning of period 23,688  21,778  19,169  
Cash and cash equivalents, end of period $19,200 (3)$19,200 (3)$20,917  

(1) 1Q17 non-cash impairment related to long-lived assets associated with the discontinuation of ClearLink DAS.
(2) During the quarter ended September 30, 2017, the Company dissolved the NoranTel legal entity which triggered a one-time $0.6 million foreign currency gain with the reversal of a cumulative translation adjustment.
(3) As of September 30, 2017, the Company has $5.0 million of short-term investments in addition to cash and cash equivalents.

Westell Technologies, Inc.
Segment Statement of Operations
(Amounts in thousands)
(Unaudited)

Sequential Quarter Comparison

  Three months ended September 30, 2017 Three months ended June 30, 2017
  IBW ISMS CNS Total IBW ISMS CNS Total
Total revenue $7,919  $4,730  $4,583  $17,232  $6,956  $4,130  $5,488  $16,574 
Gross profit 3,650  2,219  1,406  7,275  3,014  2,126  1,627  6,767 
Gross margin 46.1% 46.9% 30.7% 42.2% 43.3% 51.5% 29.6% 40.8%
R&D expenses 1,443  523  239  2,205  1,463  565  248  2,276 
Segment profit $2,207  $1,696  $1,167  $5,070  $1,551  $1,561  $1,379  $4,491 

Year-over-Year Quarter Comparison

  Three months ended September 30, 2017 Three months ended September 30, 2016
  IBW ISMS CNS Total IBW ISMS CNS Total
Total revenue $7,919  $4,730  $4,583  $17,232  $6,644  $5,109  $6,027  $17,780 
Gross profit 3,650  2,219  1,406  7,275  2,233  2,407  1,727  6,367 
Gross margin (1) 46.1% 46.9% 30.7% 42.2% 33.6% 47.1% 28.7% 35.8%
R&D expenses 1,443  523  239  2,205  1,594  1,237  496  3,327 
Segment profit $2,207  $1,696  $1,167  $5,070  $639  $1,170  $1,231  $3,040 


                 

Reconciliation of GAAP to non-GAAP IBW Segment Gross Margin

  Three months ended
 September 30, 2017
 Three months ended
June 30, 2017
 Three months ended
September 30, 2016
  Revenue Gross Profit Gross Margin Revenue Gross Profit Gross Margin Revenue Gross Profit Gross Margin
GAAP - IBW segment $7,919  $3,650  46.1% $6,956  $3,014  43.3% $6,644  $2,233  33.6%
ClearLink DAS E&O (1)               192   
Stock-based compensation (2)   (2)     8      2   
Non-GAAP - IBW segment $7,919  $3,648  46.1% $6,956  $3,022  43.4% $6,644  $2,427  36.5%
(1)  Excess and Obsolete inventory charges on ClearLink DAS inventory and firm purchase commitments.
(2) Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.


             
  Six months ended September 30, 2017 Six months ended September 30, 2016
  Revenue Gross Profit Gross Margin Revenue Gross Profit Gross Margin
GAAP - IBW segment $14,875  $6,664  44.8% $12,765  $3,227  25.3%
ClearLink DAS E&O (1)         1,581   
Stock-based compensation (2)   6      5   
Non-GAAP - IBW segment $14,875  $6,670  44.8% $12,765  $4,813  37.7%
(1)  Excess and Obsolete inventory charges on ClearLink DAS inventory and firm purchase commitments.
(2)  Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.

Westell Technologies, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
(Amounts in thousands, except per share amounts)
(Unaudited)

                   
  Three months ended
 September 30, 2017
 Three months ended
 June 30, 2017
 Three months ended
 September 30, 2016
  Revenue Gross Profit Gross Margin Revenue Gross Profit Gross Margin Revenue Gross Profit Gross Margin
GAAP - Consolidated $17,232  $7,275  42.2% $16,574  6,767  40.8% $17,780  $6,367  35.8%
Deferred revenue adjustment (1)             63  63   
ClearLink DAS E&O (2)               192   
Stock-based compensation (3)   (3)     25      8   
Non-GAAP - Consolidated $17,232  $7,272  42.2% $16,574  $6,792  41.0% $17,843  $6,630  37.2%


  Three months ended Six months ended
  September 30, June 30, September 30, September 30, September 30,
  2017 2017 2016 2017 2016
GAAP consolidated operating expenses $7,219  $7,370  $12,243  $14,589  $24,591 
Adjustments:          
Stock-based compensation (3) (345) (305) (679) (650) (1,079)
Long-lived asset impairment (4)         (1,181)
Amortization of intangibles (5) (1,048) (1,047) (1,201) (2,095) (2,401)
Restructuring, separation, and transition (6) (165)   (2,601) (165) (2,565)
  Total adjustments (1,558) (1,352) (4,481) (2,910) (7,226)
Non-GAAP consolidated operating expenses $5,661  $6,018  $7,762  $11,679  $17,365 


  Three months ended Six months ended
  September 30, June 30, September 30, September 30, September 30,
  2017 2017 2016 2017 2016
GAAP consolidated net income (loss) $720  $(572) $(5,810) $148  $(13,578)
Less:          
  Income tax benefit (expense) (13) (12) (8) (25) (10)
  Other income, net 677  43  74  720  91 
GAAP consolidated operating profit (loss) $56  $(603) $(5,876) $(547) $(13,659)
Adjustments:          
Deferred revenue adjustment (1)     63    126 
ClearLink DAS E&O (2)     192    1,581 
Stock-based compensation (3) 342  330  687  672  1,093 
Long-lived asset impairment (4)         1,181 
Amortization of intangibles (5) 1,048  1,047  1,201  2,095  2,401 
Restructuring, separation, and transition (6) 165    2,601  165  2,565 
  Total adjustments 1,555  1,377  4,744  2,932  8,947 
Non-GAAP consolidated operating profit (loss) $1,611  $774  $(1,132) $2,385  $(4,712)
Depreciation 201  230  444  431  829 
Non-GAAP consolidated Adjusted EBITDA (7) $1,812  $1,004  $(688) $2,816  $(3,883)


  Three months ended Six months ended
  September 30, June 30, September 30, September 30, September 30,
  2017 2017 2016 2017 2016
GAAP consolidated net income (loss) $720  $(572) $(5,810) $148  $(13,578)
Adjustments:          
Deferred revenue adjustment (1)     63    126 
ClearLink DAS E&O (2)     192    1,581 
Stock-based compensation (3) 342  330  687  672  1,093 
Long-lived asset impairment (4)         1,181 
Amortization of intangibles (5) 1,048  1,047  1,201  2,095  2,401 
Restructuring, separation, and transition (6) 165    2,601  165  2,565 
Foreign currency translation adjustment (8) (608)     (608)  
  Total adjustments 947  1,377  4,744  2,324  8,947 
Non-GAAP consolidated net income (loss) $1,667  $805  $(1,066) $2,472  $(4,631)
GAAP consolidated net income (loss) per common share:          
Diluted $0.05  $(0.04) $(0.38) $0.01  $(0.89)
Non-GAAP consolidated net income (loss) per common share:          
Diluted $0.11  $0.05  $(0.07) $0.16  $(0.30)
Average number of common shares outstanding:          
Diluted 15,672  15,617  15,299  15,638  15,277 

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 the non-GAAP financial information provides meaningful supplemental information to investors.  Management also believes the non-GAAP financial information reflects the Company's core ongoing operating performance and facilitates comparisons 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.

Footnotes:

(1)                On April 1, 2013, the Company purchased Kentrox.  The acquisition required the step-down on acquired deferred revenue, which resulted in lower revenue that will not recur once those liabilities have fully settled.  The adjustment removes the step-down on acquired deferred revenue that was recognized.
(2)                Non-recurring excess and obsolete inventory charges on inventory and firm purchase commitments associated with the previously announced strategic decision related to the discontinuation of ClearLink DAS.
(3)                Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.

(4)                Non-cash impairment related to tangible long-lived assets associated with the previously announced strategic decision related to the discontinuation of ClearLink DAS.
(5)                Amortization of intangibles is a non-cash expense arising from previously acquired intangible assets.

(6)                Restructuring expenses are not directly related to the ongoing performance of our fundamental business operations, including costs relating to abandonment of excess office space at our headquarters and in New Hampshire, and severance costs for terminated employees. This adjustment also includes severance benefits related to the departure of certain former executives.
(7)                EBITDA is a non-GAAP measure that represents Earnings Before Interest, Taxes, Depreciation, and Amortization.  The Company presents Adjusted EBITDA.
(8)                Non-recurring foreign currency translation gain related to the wind-up of the NoranTel legal entity during the quarter ended September 30, 2017.

For additional information, contact:

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


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