Westell Delivers Continued Profitability and $1.8M of Cash for Fiscal 3Q18

AURORA, Ill., Feb. 07, 2018 (GLOBE NEWSWIRE) -- Westell Technologies, Inc. (NASDAQ:WSTL), a leading provider of high-performance wireless infrastructure solutions, announced results for its fiscal 2018 third quarter ended December 31, 2017 (3Q18).  Management will host a conference call to discuss financial and business results tomorrow, Thursday, February 8, 2018, at 9:30 AM Eastern Time (details below).

Revenue was $13.7 million and comprised $5.2 million from the In-Building Wireless (IBW) segment, a strong $5.8 million performance from the Intelligent Site Management and Services (ISMS) segment, and a seasonally low $2.7 million from the Communication Network Solutions (CNS) segment.  Cash and short-term investments grew to $26.0 million at December 31, 2017, up from $24.2 million at September 30, 2017.

“Westell continued to generate positive operating profit margin and net income, and increase cash, even with the revenue seasonality that typifies our December quarters.  These positive results demonstrate the tremendous operating leverage we have in the business,” said Kirk Brannock, Westell’s President and Chief Executive Officer.

       
  3Q18
3 months ended
12/31/17
2Q18
3 months ended
9/30/17
 + favorable /
- unfavorable
Revenue $13.7M $17.2M -$3.5M
Gross Margin 44.4% 42.2% +2.2%
Operating Expenses $6.0M $7.2M +$1.2M
Operating Margin 0.3% 0.3% —%
Net Income $0.8M $0.7M +$0.1M
Earnings Per Share $0.05 $0.05 $—
Non-GAAP Operating Expenses (1) $4.7M $5.7M +$1.0M
Non-GAAP Operating Margin (1) 10.2% 9.3% +0.9%
Non-GAAP Net Income (1) $1.5M $1.7M -$0.2M
Non-GAAP Earnings Per Share (1) $0.09 $0.11 -$0.02
Non-GAAP Adjusted EBITDA (1) $1.6M $1.8M -$0.2M
(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.
 

“The momentum of the efficiencies created over the past year resulted in our fifth consecutive quarter of positive non-GAAP operating profit margin.  Along with our healthy cost structure, we are encouraged by the revenue growth opportunities we have in the IBW public safety market, which grew sequentially this quarter, and in emerging wireless network densification applications like centralized radio access networks (CRAN).  At the same time, we continue to evaluate new growth opportunities to increase shareholder value,” Brannock added.

In-Building Wireless (IBW) Segment

IBW’s sequential revenue decrease was driven by lower sales of our Universal DAS Interface Tray (UDIT) and passive system components, both of which achieved record quarterly revenue levels last quarter.  IBW’s segment gross margin increase was driven primarily by lower costs.

       
  3Q18
3 months ended
12/31/17
2Q18
3 months ended
9/30/17
 + favorable /
- unfavorable
IBW Segment Revenue $5.2M $7.9M -$2.7M
IBW Segment Gross Margin 47.3% 46.1% +1.2%
IBW Segment R&D Expense $0.8M $1.4M +$0.6M
IBW Segment Profit $1.7M $2.2M -$0.5M
       

Intelligent Site Management & Services (ISMS) Segment

ISMS’s sequential revenue increase was driven primarily by higher support services revenue and increased sales of Remote units, resulting in ISMS attaining its highest revenue level since the December 2015 quarter.  ISMS’s segment gross margin increase was primarily due to a more favorable mix.

       
  3Q18
3 months ended
12/31/17
2Q18
3 months ended
9/30/17
 + favorable /
- unfavorable
ISMS Segment Revenue $5.8M $4.7M +$1.1M
ISMS Segment Gross Margin 54.5% 46.9% +7.6%
ISMS Segment R&D Expense $0.5M $0.5M $—
ISMS Segment Profit $2.6M $1.7M +$0.9M
       

Communication Network Solutions (CNS) Segment

CNS product lines are used primarily in the outdoor communication network; as a result, the December quarter tends to be its lowest performing quarter.  In 3Q18, CNS’s sequential revenue decrease was most affected by lower sales of Integrated Cabinets and Tower Mounted Amplifiers.  CNS’s gross margin decrease was primarily due to the lower revenue.

       
  3Q18
3 months ended
12/31/17
2Q18
3 months ended
9/30/17
 + favorable /
- unfavorable
CNS Segment Revenue $2.7M $4.6M -$1.9M
CNS Segment Gross Margin 16.9% 30.7% -13.8%
CNS Segment R&D Expense $0.2M $0.2M $—
CNS Segment Profit $0.2M $1.2M -$1.0M
       

Conference Call Information
Management will discuss financial and business results during the quarterly conference call on Thursday, February 8, 2018, 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 February 8, 2018, by calling 888-206-4073 no later than 8:15 AM Central Time (9:15 AM Eastern Time) and providing the operator confirmation number 46315825.

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://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   Nine months ended  
    December 31,   September 30,   December 31,   December 31,   December 31,  
    2017   2017   2016   2017   2016  
Revenue:                      
Products   $ 11,754     $ 16,097     $ 12,746     $ 43,396     $ 42,240    
Services   1,921     1,135     2,237     4,085     5,339    
Total revenue   13,675     17,232     14,983     47,481     47,579    
Cost of revenue:                      
Products   7,114     9,522     7,807     26,060     27,788    
Services   485     435     1,122     1,303     2,805    
Total cost of revenue   7,599     9,957     8,929     27,363     30,593    
Gross profit   6,076     7,275     6,054     20,118     16,986    
Gross margin   44.4 %   42.2 %   40.4 %   42.4 %   35.7 %  
Operating expenses:                      
R&D   1,542     2,205     2,414     6,023     10,018    
Sales and marketing   1,950     1,992     1,943     6,278     8,220    
General and administrative   1,502     1,809     1,777     5,022     6,340    
Intangible amortization   1,047     1,048     1,212     3,142     3,613    
Restructuring       165   (1 ) 490   (2 ) 165   (1 ) 3,055   (2 )
Long-lived assets impairment                   1,181   (3 )
Total operating expenses   6,041     7,219     7,836     20,630     32,427    
Operating profit (loss)   35     56     (1,782 )   (512 )   (15,441 )  
Other income, net   79     677   (4 ) (15 )   799   (4 ) 76    
Income (loss) before income taxes   114     733     (1,797 )   287     (15,365 )  
Income tax benefit (expense)   685   (5 ) (13 )   (10 )   660   (5 ) (20 )  
Net income (loss)   $ 799     $ 720     $ (1,807 )   $ 947     $ (15,385 )  
                       
Net income (loss) per share:                      
Basic net income (loss)   $ 0.05     $ 0.05     $ (0.12 ) (6 ) $ 0.06     $ (1.00 ) (6 )
Diluted net income (loss)   $ 0.05     $ 0.05     $ (0.12 ) (6 ) $ 0.06     $ (1.00 ) (6 )
Weighted-average number of common shares outstanding:                      
Basic   15,504     15,461     15,391   (6 ) 15,482     15,315   (6 )
Diluted   15,755     15,672     15,391   (6 ) 15,679     15,315   (6 )

(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)   During the quarter ended December 31, 2017, the Company had an income tax benefit of $697K from the release of the tax valuation allowance associated with previously generated alternative minimum tax (AMT) credits due to the enactment of the Tax Cuts and Jobs Act of 2017.
(6)   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)
         
    December 31, 2017
(Unaudited)
  March 31, 2017
Assets        
Cash and cash equivalents   $ 21,492     $ 21,778  
Short-term investments   4,537      
Accounts receivable, net   11,070     12,075  
Inventories   9,464     12,511  
Prepaid expenses and other current assets   864     1,409  
Total current assets   47,427     47,773  
Land, property and equipment, net   1,630     1,984  
Intangible assets, net   12,482     15,624  
Tax receivable, non-current   697      
Other non-current assets   80     160  
Total assets   $ 62,316     $ 65,541  
Liabilities and Stockholders’ Equity        
Accounts payable   $ 2,494     $ 4,163  
Accrued expenses   3,528     4,273  
Accrued restructuring   166     1,171  
Deferred revenue   1,931     2,359  
Total current liabilities   8,119     11,966  
Deferred revenue non-current   912     1,102  
Accrued restructuring non-current       63  
Other non-current liabilities   341     236  
Total liabilities   9,372     13,367  
Total stockholders’ equity   52,944     52,174  
Total liabilities and stockholders’ equity   $ 62,316     $ 65,541  

 

           
Westell Technologies, Inc.
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
           
    Three months
ended
December 31,
  Nine months
 ended
 December 31,
 
    2017   2017   2016  
Cash flows from operating activities:      
Net income (loss)   $ 799     $ 947     $ (15,385 )  
Reconciliation of net income (loss) to net cash used in operating activities:              
Depreciation and amortization   1,221     3,747     4,714    
Long-lived assets impairment           1,181   (1 )
Stock-based compensation   316     988     1,346    
Loss on sale of fixed assets   2     10     11    
Restructuring       165     3,055    
Deferred taxes   (697 )   (697 )   20    
Gain on disposal of foreign operations       (608 ) (2 )    
Exchange rate loss (gain)   (14 )   (20 )   44    
Changes in assets and liabilities:              
Accounts receivable       1,025     5,098    
Inventory   519     3,047     509    
Accounts payable and accrued expenses   (1,236 )   (3,542 )   (6,802 )  
Deferred revenue   859     (618 )   686    
Prepaid expenses and other current assets   170     545     494    
Other assets   7     80     (7 )  
Net cash provided by (used in) operating activities   1,946     5,069     (5,036 )  
Cash flows from investing activities:              
Net maturity (purchase) of short-term investments   474     (4,537 )   10,555    
Purchases of property and equipment, net   (7 )   (261 )   (527 )  
Net cash provided by (used in) investing activities   467     (4,798 )   10,028    
Cash flows from financing activities:              
Purchase of treasury stock   (102 )   (558 )   (146 )  
Payment of contingent consideration           (175 )  
Net cash provided by (used in) financing activities   (102 )   (558 )   (321 )  
Gain (loss) of exchange rate changes on cash   (19 )   1     2    
Net increase (decrease) in cash and cash equivalents   2,292     (286 )   4,673    
Cash and cash equivalents, beginning of period   19,200     21,778     19,169    
Cash and cash equivalents, end of period   $ 21,492   (3 ) $ 21,492   (3 ) $ 23,842    

(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 December 31, 2017, the Company has $4.5 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 December 31, 2017   Three months ended September 30, 2017
    IBW   ISMS   CNS   Total   IBW   ISMS   CNS   Total
Total revenue   $ 5,223     $ 5,802     $ 2,650     $ 13,675     $ 7,919     $ 4,730     $ 4,583     $ 17,232  
Gross profit   2,469     3,160     447     6,076     3,650     2,219     1,406     7,275  
Gross margin   47.3 %   54.5 %   16.9 %   44.4 %   46.1 %   46.9 %   30.7 %   42.2 %
R&D expenses   750     547     245     1,542     1,443     523     239     2,205  
Segment profit   $ 1,719     $ 2,613     $ 202     $ 4,534     $ 2,207     $ 1,696     $ 1,167     $ 5,070  


         
Year-over-Year Quarter Comparison
         
    Three months ended December 31, 2017   Three months ended December 31, 2016
    IBW   ISMS   CNS   Total   IBW   ISMS   CNS   Total
Total revenue   $ 5,223     $ 5,802     $ 2,650     $ 13,675     $ 6,224     $ 5,525     $ 3,234     $ 14,983  
Gross profit   2,469     3,160     447     6,076     2,511     2,795     748     6,054  
Gross margin (1)   47.3 %   54.5 %   16.9 %   44.4 %   40.3 %   50.6 %   23.1 %   40.4 %
R&D expenses   750     547     245     1,542     1,307     805     302     2,414  
Segment profit   $ 1,719     $ 2,613     $ 202     $ 4,534     $ 1,204     $ 1,990     $ 446     $ 3,640  


             
Reconciliation of GAAP to non-GAAP IBW Segment Gross Margin
             
    Three months ended
 December 31, 2017
  Three months ended
September 30, 2017
  Three months ended
December 31, 2016
    Revenue   Gross
Profit
  Gross
Margin
  Revenue   Gross
Profit
  Gross
Margin
  Revenue   Gross
Profit
  Gross
Margin
GAAP - IBW segment   $ 5,223     $ 2,469     47.3 %   $ 7,919     $ 3,650     46.1 %   $ 6,224     $ 2,511     40.3 %
Stock-based compensation (1)       2             (2 )           2      
Non-GAAP - IBW segment   $ 5,223     $ 2,471     47.3 %   $ 7,919     $ 3,648     46.1 %   $ 6,224     $ 2,513     40.4 %
(1) Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.


                         
    Nine months ended December 31, 2017   Nine months ended December 31, 2016
    Revenue   Gross Profit   Gross Margin   Revenue   Gross Profit   Gross Margin
GAAP - IBW segment   $ 20,098     $ 9,133     45.4 %   $ 18,989     $ 5,738     30.2 %
ClearLink DAS E&O (1)                   1,581      
Stock-based compensation (2)       8             7      
Non-GAAP - IBW segment   $ 20,098     $ 9,141     45.5 %   $ 18,989     $ 7,326     38.6 %
(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
 December 31, 2017
  Three months ended
 September 30, 2017
  Three months ended
 December 31, 2016
    Revenue   Gross
Profit
  Gross
Margin
  Revenue   Gross
Profit
  Gross
Margin
  Revenue   Gross
Profit
  Gross
Margin
GAAP - Consolidated   $ 13,675     $ 6,076     44.4 %   $ 17,232     $ 7,275     42.2 %   $ 14,983     $ 6,054     40.4 %
Deferred revenue adjustment (1)                           64     64      
Stock-based compensation (2)       11             (3 )           10      
Non-GAAP - Consolidated   $ 13,675     $ 6,087     44.5 %   $ 17,232     $ 7,272     42.2 %   $ 15,047     $ 6,128     40.7 %


    Three months ended   Nine months ended
    December 31,   September 30,   December 31,   December 31,   December 31,
    2017   2017   2016   2017   2016
GAAP consolidated operating expenses   $ 6,041     $ 7,219     $ 7,836     $ 20,630     $ 32,427  
Adjustments:                    
Stock-based compensation (2)   (305 )   (345 )   (243 )   (955 )   (1,322 )
Long-lived asset impairment (3)                   (1,181 )
Amortization of intangibles (4)   (1,047 )   (1,048 )   (1,212 )   (3,142 )   (3,613 )
Restructuring, separation, and transition (5)       (165 )   (490 )   (165 )   (3,055 )
Total adjustments   (1,352 )   (1,558 )   (1,945 )   (4,262 )   (9,171 )
Non-GAAP consolidated operating expenses   $ 4,689     $ 5,661     $ 5,891     $ 16,368     $ 23,256  


    Three months ended   Nine months ended
    December 31,   September 30,   December 31,   December 31,   December 31,
    2017   2017   2016   2017   2016
GAAP consolidated net income (loss)   $ 799     $ 720     $ (1,807 )   $ 947     $ (15,385 )
Less:                    
Income tax benefit (expense)   685     (13 )   (10 )   660     (20 )
Other income, net   79     677     (15 )   799     76  
GAAP consolidated operating profit (loss)   $ 35     $ 56     $ (1,782 )   $ (512 )   $ (15,441 )
Adjustments:                    
Deferred revenue adjustment (1)           64         190  
ClearLink DAS E&O (6)                   1,581  
Stock-based compensation (2)   316     342     253     988     1,346  
Long-lived asset impairment (3)                   1,181  
Amortization of intangibles (4)   1,047     1,048     1,212     3,142     3,613  
Restructuring, separation, and transition (5)       165     490     165     3,055  
Total adjustments   1,363     1,555     2,019     4,295     10,966  
Non-GAAP consolidated operating profit (loss)   $ 1,398     $ 1,611     $ 237     $ 3,783     $ (4,475 )
Depreciation   174     201     272     605     1,101  
Non-GAAP consolidated Adjusted EBITDA (7)   $ 1,572     $ 1,812     $ 509     $ 4,388     $ (3,374 )


    Three months ended   Nine months ended
    December 31,   September 30,   December 31,   December 31,   December 31,
    2017   2017   2016   2017   2016
GAAP consolidated net income (loss)   $ 799     $ 720     $ (1,807 )   $ 947     $ (15,385 )
Adjustments:                    
Deferred revenue adjustment (1)           64         190  
ClearLink DAS E&O (6)                   1,581  
Stock-based compensation (2)   316     342     253     988     1,346  
Long-lived asset impairment (3)                   1,181  
Amortization of intangibles (4)   1,047     1,048     1,212     3,142     3,613  
Restructuring, separation, and transition (5)       165     490     165     3,055  
Foreign currency translation adjustment (8)       (608 )       (608 )    
Income taxes (9)   (697 )           (697 )    
Total adjustments   666     947     2,019     2,990     10,966  
Non-GAAP consolidated net income (loss)   $ 1,465     $ 1,667     $ 212     $ 3,937     $ (4,419 )
GAAP consolidated net income (loss) per common share:                    
Diluted   $ 0.05     $ 0.05     $ (0.12 )   $ 0.06     $ (1.00 )
Non-GAAP consolidated net income (loss) per common share:                    
Diluted   $ 0.09     $ 0.11     $ 0.01     $ 0.25     $ (0.29 )
Average number of common shares outstanding:                    
Diluted   15,755     15,672     15,425     15,679     15,315  

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)   Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.
(3)   Non-cash impairment related to tangible long-lived assets associated with the previously announced strategic decision related to the discontinuation of ClearLink DAS.
(4)    Amortization of intangibles is a non-cash expense arising from previously acquired intangible assets.
(5)   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.
(6)   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.
(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.
(9)   Adjustment removes one-time tax effect of changes in valuation allowance reserves associated with previously generated alternative minimum tax (AMT) credits due to the enactment of the Tax Cuts and Jobs Act of 2017.

For additional information, contact:

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

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Source: Westell Technologies, Inc.