![]() | NEWS RELEASE |
Three Months Ended March 31, | Twelve Months Ended March 31, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenue | $ | 24,421 | $ | 10,663 | $ | 102,073 | $ | 38,808 | |||||||||
Gross profit | 8,524 | 4,013 | 41,958 | 13,325 | |||||||||||||
Gross margin | 34.9 | % | 37.6 | % | 41.1 | % | 34.3 | % | |||||||||
Operating expenses: | |||||||||||||||||
Sales & marketing | 3,851 | 1,924 | 14,663 | 7,492 | |||||||||||||
Research & development | 3,494 | 1,556 | 11,339 | 5,928 | |||||||||||||
General & administrative | 3,827 | 2,473 | 14,027 | 9,310 | |||||||||||||
Intangibles amortization | 1,320 | 235 | 4,908 | 887 | |||||||||||||
Restructuring | 62 | — | 335 | 149 | |||||||||||||
Goodwill impairment (1) | — | 2,884 | — | 2,884 | |||||||||||||
Total operating expenses | 12,554 | 9,072 | 45,272 | 26,650 | |||||||||||||
Operating income (loss) | (4,030 | ) | (5,059 | ) | (3,314 | ) | (13,325 | ) | |||||||||
Other income (expense), net | 7 | 41 | (56 | ) | 175 | ||||||||||||
Income (loss) before income taxes and discontinued operations | (4,023 | ) | (5,018 | ) | (3,370 | ) | (13,150 | ) | |||||||||
Income tax benefit (expense) | 8,907 | (2) | (32,611 | ) | (3) | 8,782 | (2) | (29,392 | ) | (3) | |||||||
Net income (loss) from continuing operations | 4,884 | (37,629 | ) | 5,412 | (42,542 | ) | |||||||||||
Loss from discontinued operations, net of income tax (3) | (6 | ) | (529 | ) | (45 | ) | (1,496 | ) | |||||||||
Net income (loss) | $ | 4,878 | $ | (38,158 | ) | $ | 5,367 | $ | (44,038 | ) | |||||||
Basic net income (loss) per share: | |||||||||||||||||
Basic net income (loss) from continuing operations | $ | 0.08 | $ | (0.65 | ) | $ | 0.09 | $ | (0.71 | ) | |||||||
Basic net income (loss) from discontinued operations | — | (0.01 | ) | — | (0.02 | ) | |||||||||||
Basic net income (loss) | $ | 0.08 | $ | (0.66 | ) | $ | 0.09 | $ | (0.73 | ) | |||||||
Diluted net income (loss) per share: | |||||||||||||||||
Diluted net income (loss) from continuing operations | $ | 0.08 | $ | (0.65 | ) | $ | 0.09 | $ | (0.71 | ) | |||||||
Diluted net income (loss) from discontinued operations | — | (0.01 | ) | — | (0.02 | ) | |||||||||||
Diluted net income (loss) | $ | 0.08 | $ | (0.66 | ) | $ | 0.09 | $ | (0.73 | ) | |||||||
Weighted-average number of shares outstanding: | |||||||||||||||||
Basic | 59,109 | 58,154 | 58,786 | 59,944 | |||||||||||||
Diluted | 60,971 | 58,154 | 60,048 | 59,944 |
(1) | The Company recorded a non-cash charge of $2.9 million during the fourth quarter of fiscal 2013 to record the impairment of the full carrying value of the Company's goodwill. 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 charge. |
(2) | In fiscal year 2014, the Company acquired Kentrox and CSI in stock transactions. Deferred tax liabilities of $9.1 million resulted from the acquisitions relating primarily to acquired intangible assets. The Company's anticipated ability to realize deferred tax assets from the reversal of these deferred tax liabilities resulted in a partial reversal of valuation allowance related to the Company's deferred tax assets. Income tax expense, excluding the impact of the acquisitions noted above, was primarily from state income tax expense in non-unitary states and state taxes based on gross margin, not taxable income. |
(3) | In fiscal year 2013, the Company considered both the positive and negative evidence available to assess its ability to realize the value of its deferred tax assets. The Company considered negative factors, which include recent losses and a forecasted cumulative loss position, as well as positive evidence consisting primarily of projected future earnings. The Company concluded that the negative evidence outweighed the objectively verifiable positive evidence. As a consequence, the Company increased the valuation allowance reserve and tax expense by $34.0 million. This reserve, taken together with the tax contingency reserve, had the effect of reserving in full all of the Company's deferred tax assets as of March 31, 2013. |
March 31, 2014 | March 31, 2013 | |||||||||
Assets: | ||||||||||
Cash and cash equivalents | $ | 35,793 | $ | 88,233 | ||||||
Restricted cash | — | 2,500 | ||||||||
Short-term investments | 15,584 | 24,349 | ||||||||
Accounts receivable, net | 15,851 | 6,689 | ||||||||
Inventories | 24,436 | 12,223 | ||||||||
Prepaid expenses and other current assets | 1,975 | 1,804 | ||||||||
Deferred income tax asset | 899 | — | ||||||||
Land held-for-sale | 1,044 | — | ||||||||
Total current assets | 95,582 | 135,798 | ||||||||
Property and equipment, net | 1,946 | 1,081 | ||||||||
Goodwill | 30,697 | — | ||||||||
Intangible assets, net | 32,356 | 5,063 | ||||||||
Other non-current assets | 393 | 495 | ||||||||
Total assets | $ | 160,974 | $ | 142,437 | ||||||
Liabilities and Stockholders’ Equity: | ||||||||||
Accounts payable | $ | 6,726 | $ | 4,126 | ||||||
Accrued expenses | 7,813 | 3,953 | ||||||||
Contingent consideration | 2,067 | — | ||||||||
Deferred revenue | 1,774 | — | ||||||||
Total current liabilities | 18,380 | 8,079 | ||||||||
Deferred revenue non-current | 787 | — | ||||||||
Tax contingency reserve long-term | 1,072 | 305 | ||||||||
Contingent consideration long-term | 574 | 2,333 | ||||||||
Other non-current liabilities | 528 | 643 | ||||||||
Total liabilities | 21,341 | 11,360 | ||||||||
Total stockholders’ equity | 139,633 | 131,077 | ||||||||
Total liabilities and stockholders’ equity | $ | 160,974 | $ | 142,437 |
Twelve Months Ended March 31, | ||||||||
2014 | 2013 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 5,367 | $ | (44,038 | ) | |||
Reconciliation of net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 5,530 | 1,381 | ||||||
Goodwill impairment | — | 2,884 | ||||||
Stock-based compensation | 1,871 | 1,407 | ||||||
Restructuring | 335 | 149 | ||||||
Deferred taxes | (9,312 | ) | 29,865 | |||||
Other | 41 | (8 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (2,139 | ) | (979 | ) | ||||
Inventories | 457 | (2,002 | ) | |||||
Accounts payable and accrued liabilities | (1,081 | ) | (183 | ) | ||||
Other | 528 | (601 | ) | |||||
Net cash provided by (used in) operating activities | 1,597 | (12,125 | ) | |||||
Cash flows from investing activities: | ||||||||
Net purchases of short-term investments and debt securities | 8,765 | (9,894 | ) | |||||
Acquisitions, net of cash acquired | (66,170 | ) | (2,524 | ) | ||||
Purchases of property and equipment, net | (443 | ) | (379 | ) | ||||
Proceeds from sale of assets | — | 15 | ||||||
Changes in restricted cash | 2,500 | 4,951 | ||||||
Net cash provided by (used in) investing activities | (55,348 | ) | (7,831 | ) | ||||
Cash flows from financing activities: | ||||||||
Purchase of treasury stock | (359 | ) | (12,733 | ) | ||||
Proceeds from stock options exercised | 1,677 | 87 | ||||||
Net cash provided by (used in) financing activities | 1,318 | (12,646 | ) | |||||
(Gain) loss of exchange rate changes on cash | (7 | ) | 3 | |||||
Net increase (decrease) in cash | (52,440 | ) | (32,599 | ) | ||||
Cash and cash equivalents, beginning of period | 88,233 | 120,832 | ||||||
Cash and cash equivalents, end of period | $ | 35,793 | $ | 88,233 |
Three Months Ended March 31, 2014 | ||||||||||||||||
CSI (1) | Kentrox | Westell | Total | |||||||||||||
Revenue | $ | 3,676 | $ | 3,362 | $ | 17,383 | $ | 24,421 | ||||||||
Cost of revenue | 2,312 | 1,971 | 11,614 | 15,897 | ||||||||||||
Gross profit | 1,364 | 1,391 | 5,769 | 8,524 | ||||||||||||
Gross margin | 37.1 | % | 41.4 | % | 33.2 | % | 34.9 | % | ||||||||
Operating expenses: | ||||||||||||||||
Research & development | 625 | 1,021 | 1,848 | 3,494 | ||||||||||||
Segment profit | $ | 739 | $ | 370 | $ | 3,921 | 5,030 | |||||||||
Sales & marketing | 3,851 | |||||||||||||||
General & administrative | 3,827 | |||||||||||||||
Intangible amortization | 1,320 | |||||||||||||||
Restructuring | 62 | |||||||||||||||
Operating loss | (4,030 | ) | ||||||||||||||
Other income | 7 | |||||||||||||||
Income tax benefit | 8,907 | |||||||||||||||
Net income from continuing operations | $ | 4,884 |
Three Months Ended March 31, 2013 | ||||||||||||
Westell | Total | |||||||||||
Revenue | $ | 10,663 | $ | 10,663 | ||||||||
Cost of revenue | 6,650 | 6,650 | ||||||||||
Gross profit | 4,013 | 4,013 | ||||||||||
Gross margin | 37.6 | % | 37.6 | % | ||||||||
Operating expenses: | ||||||||||||
Research & development | 1,556 | 1,556 | ||||||||||
Segment profit | $ | 2,457 | 2,457 | |||||||||
Sales & marketing | 1,924 | |||||||||||
General & administrative | 2,473 | |||||||||||
Intangible amortization | 235 | |||||||||||
Goodwill impairment (2) | 2,884 | |||||||||||
Operating loss | (5,059 | ) | ||||||||||
Other income | 41 | |||||||||||
Income tax benefit | (32,611 | ) | ||||||||||
Net loss from continuing operations | $ | (37,629 | ) |
(1) | The results of operations relating to CSI are included in the Company's Consolidated Financial Statements from the March 1, 2014, acquisition date. |
(2) | The Company recorded a non-cash charge of $2.9 million during the fourth quarter of fiscal year 2013 to record the impairment of the full carrying amount of the Company's goodwill. |
Twelve Months Ended March 31, 2014 | ||||||||||||||||
CSI (1) | Kentrox | Westell | Total | |||||||||||||
Revenue | $ | 3,676 | $ | 46,174 | $ | 52,223 | $ | 102,073 | ||||||||
Cost of revenue | 2,312 | 22,657 | 35,146 | 60,115 | ||||||||||||
Gross profit | 1,364 | 23,517 | 17,077 | 41,958 | ||||||||||||
Gross margin | 37.1 | % | 50.9 | % | 32.7 | % | 41.1 | % | ||||||||
Operating expenses: | ||||||||||||||||
Research & development | 625 | 3,778 | 6,936 | 11,339 | ||||||||||||
Segment profit | $ | 739 | $ | 19,739 | $ | 10,141 | 30,619 | |||||||||
Sales & marketing | 14,663 | |||||||||||||||
General & administrative | 14,027 | |||||||||||||||
Intangible amortization | 4,908 | |||||||||||||||
Restructuring | 335 | |||||||||||||||
Operating loss | (3,314 | ) | ||||||||||||||
Other loss | (56 | ) | ||||||||||||||
Income tax benefit | 8,782 | |||||||||||||||
Net income from continuing operations | $ | 5,412 |
Twelve Months Ended March 31, 2013 | ||||||||||||
Westell | Total | |||||||||||
Revenue | $ | 38,808 | $ | 38,808 | ||||||||
Cost of revenue | 25,483 | 25,483 | ||||||||||
Gross profit | 13,325 | 13,325 | ||||||||||
Gross margin | 34.3 | % | 34.3 | % | ||||||||
Operating expenses: | ||||||||||||
Research & development | 5,928 | 5,928 | ||||||||||
Segment profit | $ | 7,397 | 7,397 | |||||||||
Sales & marketing | 7,492 | |||||||||||
General & administrative | 9,310 | |||||||||||
Intangible amortization | 887 | |||||||||||
Restructuring | 149 | |||||||||||
Goodwill impairment (2) | 2,884 | |||||||||||
Operating loss | (13,325 | ) | ||||||||||
Other income | 175 | |||||||||||
Income tax expense | (29,392 | ) | ||||||||||
Net loss from continuing operations | $ | (42,542 | ) |
(1) | The results of operations relating to CSI are included in the Company's Consolidated Financial Statements from the March 1, 2014, acquisition date. |
(2) | The Company recorded a non-cash charge of $2.9 million during the fourth quarter of fiscal year 2013 to record the impairment of the full carrying value of the Company's goodwill. |
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
GAAP net income (loss) | $ | 4,878 | $ | (38,158 | ) | $ | 5,367 | $ | (44,038 | ) | ||||||
Adjustments: | ||||||||||||||||
Inventory fair value step-up (1) | 833 | — | 2,160 | — | ||||||||||||
Deferred revenue adjustment (1) | 169 | — | 2,089 | — | ||||||||||||
Amortization of intangibles (2) | 1,320 | 235 | 4,908 | 887 | ||||||||||||
Income taxes (3) | (9,146 | ) | 34,032 | (9,146 | ) | 34,032 | ||||||||||
Restructuring (4) | 62 | — | 335 | 149 | ||||||||||||
Stock-based compensation (5) | 578 | 363 | 1,871 | 1,407 | ||||||||||||
Goodwill impairment (6) | — | 2,884 | — | 2,884 | ||||||||||||
Loss from discontinued operations (7) | 6 | 529 | 45 | 1,496 | ||||||||||||
Total adjustments | (6,178 | ) | 38,043 | 2,262 | 40,855 | |||||||||||
Non-GAAP net income (loss) | $ | (1,300 | ) | $ | (115 | ) | $ | 7,629 | $ | (3,183 | ) | |||||
GAAP net income (loss) per common share: | ||||||||||||||||
Basic | $ | 0.08 | $ | (0.66 | ) | $ | 0.09 | $ | (0.73 | ) | ||||||
Diluted | $ | 0.08 | $ | (0.66 | ) | $ | 0.09 | $ | (0.73 | ) | ||||||
Non-GAAP net income (loss) per common share: | ||||||||||||||||
Basic | $ | (0.02 | ) | $ | — | $ | 0.13 | $ | (0.05 | ) | ||||||
Diluted | $ | (0.02 | ) | $ | — | $ | 0.13 | $ | (0.05 | ) | ||||||
Average number of common shares outstanding: | ||||||||||||||||
Basic | 59,109 | 58,154 | 58,786 | 59,944 | ||||||||||||
Diluted | 60,971 | 58,154 | 60,048 | 59,944 | ||||||||||||
Three Months Ended March 31, | Twelve Months Ended March 31, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
GAAP operating expenses | 12,554 | 9,072 | 45,272 | 26,650 | ||||||||||||
Adjustments: | ||||||||||||||||
Amortization of intangibles (2) | (1,320 | ) | (235 | ) | (4,908 | ) | (887 | ) | ||||||||
Restructuring (4) | (62 | ) | — | (335 | ) | (149 | ) | |||||||||
Stock-based compensation (5) | (560 | ) | (356 | ) | (1,818 | ) | (1,380 | ) | ||||||||
Goodwill impairment (6) | — | (2,884 | ) | — | (2,884 | ) | ||||||||||
Total adjustments | (1,942 | ) | (3,475 | ) | (7,061 | ) | (5,300 | ) | ||||||||
Non-GAAP operating expense | 10,612 | 5,597 | 38,211 | 21,350 |
Three Months Ended March 31, 2014 | |||||||||||
Revenue | Gross Profit | Gross Margin | |||||||||
GAAP - Kentrox | $ | 3,362 | $ | 1,391 | 41.4 | % | |||||
Inventory fair value step-up (1) | — | 288 | |||||||||
Deferred revenue adjustment (1) | 169 | 169 | |||||||||
Non-GAAP - Kentrox | $ | 3,531 | $ | 1,848 | 52.3 | % |
Three Months Ended March 31, 2014 | |||||||||||
Revenue | Gross Profit | Gross Margin | |||||||||
GAAP - CSI | $ | 3,676 | $ | 1,364 | 37.1 | % | |||||
Inventory fair value step-up (1) | — | 545 | |||||||||
Non-GAAP - CSI | $ | 3,676 | $ | 1,909 | 51.9 | % |
Twelve Months Ended March 31, 2014 | |||||||||||
Revenue | Gross Profit | Gross Margin | |||||||||
GAAP - consolidated | $ | 102,073 | $ | 41,958 | 41.1 | % | |||||
Inventory fair value step-up (1) | — | 2,160 | |||||||||
Deferred revenue adjustment (1) | 2,089 | 2,089 | |||||||||
Non-GAAP - consolidated | $ | 104,162 | $ | 46,207 | 44.4 | % |
(1) | On April 1, 2013 and on March 1, 2014, the Company purchased Kentrox and CSI, respectively, which 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 in the three and twelve months ended March 31, 2014. |
(2) | Amortization of intangibles is a non-cash expense arising from the acquisition of intangible assets. |
(3) | In fiscal year 2014, the Company acquired Kentrox and CSI in stock transactions. Deferred tax liabilities of $9.1 million resulted from the acquisitions relating primarily to acquired intangible assets. The Company's anticipated ability to realize deferred tax assets from the reversal of these deferred tax liabilities resulted in a partial reversal of valuation allowance related to the Company's deferred tax assets. The fiscal year 2014 adjustment removes the related income tax benefit. The Company is in a full valuation allowance in fiscal year 2014. The fiscal year 2013 adjustment removes the tax benefits recorded in fiscal year 2013 to reflect the tax result had the Company been in a full valuation allowance in fiscal year 2013. |
(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. |
(6) | The Company recorded a non-cash charge of $2.9 million during the fourth quarter of fiscal 2013 to record the impairment of the full carrying value of the Company's goodwill. |
(7) | Historical results of operations of the CNS division and ConferencePlus are presented as discontinued operations. |
Tom Minichiello Chief Financial Officer Westell Technologies, Inc. +1 (630) 375-4740 tminichiello@westell.com |