Westell Technologies Reports $0.04 EPS

AURORA, Ill.--(BUSINESS WIRE)-- Westell Technologies Fiscal 2011 Third Quarter Highlights:

    --  Fiscal third quarter revenue of $48.3 million was up 13% compared with
        the same quarter of the prior year.
    --  Fiscal third quarter net income was $2.9 million, compared with $2.7
        million in the same quarter of the prior year.
    --  Earnings per share were $0.04 per share for each of the current and
        prior-year quarters.
    --  Cash and short-term investments increased by $16.4 million during the
        quarter, to $86.4 million.

Westell Technologies, Inc. (NASDAQ: WSTL), a leading provider of broadband products, outside plant telecommunications equipment and conferencing services, today announced results for its fiscal 2011 third quarter ended December 31, 2010. Total revenue for the quarter was $48.3 million, up 13% from $42.8 million in the fiscal third quarter of the prior year. Net income during the quarter was $2.9 million, or $0.04 per diluted share, compared to net income of $2.7 million, or $0.04 per diluted share, in the same quarter of the prior year. Total cash and short-term investments were $86.4 million at December 31, 2010, up $16.4 million during the quarter.

"I am pleased to report that we produced year-over-year increases in consolidated revenue, earnings and cash flow, despite the expected seasonal slowdown in our Outside Plant business," said Chairman and CEO Rick Gilbert. "All three business units contributed positive net income. In particular, Customer Networking Solutions delivered significant software revenue which boosted margins and profit."

Fiscal Third Quarter Division and Consolidated Results

The Customer Networking Solutions (CNS) division reported revenue of $26.2 million in the third quarter of fiscal 2011, up 28% compared to $20.5 million in the same quarter of the prior year. Continuing recent trends, VersaLink gateway product revenue increased in the current quarter while revenue from modems decreased, compared to the same quarter of the prior year. UltraLine Series3 revenues of $4.5 million in the quarter included the recognition of $1.1 million of revenue related to software projects. UltraLine Series3 revenues were approximately $3.8 million in the prior-year quarter. CNS gross profit benefited from the software revenue and increased by $1.2 million, with gross margin increasing to 18.1%, compared with 17.4% in the prior-year quarter. Operating expenses were $4.1 million, essentially in line with the prior-year quarter, in spite of higher spending on the company's HomeCloudTM initiative. As a result, CNS operating income improved to approximately $0.7 million for the third quarter of fiscal 2011, up $1.3 million, compared with an operating loss of $0.6 million in the same quarter of the prior year.

Revenue in the Outside Plant Systems (OSP) division was $11.8 million in the quarter, down 5% compared to $12.4 million in the same quarter of the prior year. Demand for OSP products was reduced in the latest quarter by tight customer management of year-end inventory and by an influx of refurbished equipment in the marketplace. Fiscal 2011 third quarter gross profit was $5.1 million, compared to $5.6 million in the same quarter of the prior year. Gross margins were 43.2%, compared with 44.8% in the prior-year quarter. Operating expenses increased $0.7 million versus the prior-year quarter, reflecting an increased focus on marketing and development of new Ethernet-based products for the cellular backhaul market. Resulting operating income for OSP in the quarter was $2.1 million, down $1.1 million compared with operating income of $3.2 million in the same quarter of the prior year.

Conference Plus (CP) revenue was up 5% to $10.3 million in the quarter, compared to $9.9 million in the same quarter of the prior year. Gross profit increased by $0.4 million on higher gross margins, and operating expenses were $0.4 million higher than in the same quarter of the prior year. Operating income therefore was unchanged from the same quarter of the prior year at $1.0 million.

On a consolidated basis, fiscal third quarter revenue of $48.3 million was up 13%, or $5.5 million, compared with $42.8 million in the same quarter of the prior year. Gross profit increased $1.1 million, and gross margins were 30.7%, compared with 32.2% in the same quarter of the prior year. Operating expenses for the quarter were up $0.1 million compared with the prior-year quarter. These expenses reflect increased spending on the HomeCloud and Ethernet initiatives. Unallocated expenses for the prior-year quarter included $0.7 million of expense to correct an understatement of stock-based compensation. Income tax expense in the current period was $26,000, compared to an income tax benefit of $0.7 million in the same quarter of the prior year. Reflecting all of the above factors, net income was $2.9 million in the current quarter versus $2.7 million in the same quarter of the prior year.

Cash and short-term investments increased $16.4 million during the quarter. The increase was driven primarily by an increase in accounts payable as a result of timing and terms for inventory purchases. A large portion of this payables increase is expected to be temporary.

Conference Call Information

Management will address financial and business results during Westell's fiscal third quarter 2011 earnings conference call on Thursday, January 20, at 9:30 AM Eastern Time. Conference Plus, Inc. (ConferencePlus(R)), a Westell subsidiary, will manage Westell's earnings conference call using its EventManager(TM) Service. Participants can register for the Westell conference by going to the URL:

http://www.conferenceplus.com/westell.

With EventManager, participants can quickly register online in advance of the conference through a customizable web page that can be used to gather multiple pieces of information from each participant, as specified by the event arranger. After registering, participants receive dial-in numbers, a passcode, and a personal identification number (PIN) that is used to uniquely identify their presence and automatically join them into the audio conference. If a participant experiences any technical difficulties after joining the conference call on January 20, he or she can press *0 for support.

If a participant does not wish to register, he or she can participate in the call on January 20, by dialing ConferencePlus at 1-888-206-4073 no later than 9:15 AM, Eastern Time and using confirmation number 28624109. International participants may dial 1-847-413-9014.

Westell's press release on earnings and related information that may be discussed on the earnings conference will be posted on the Investor Relations' section of Westell's website, http://www.westell.com. An archive of the entire conference will be available on Westell's website or via Digital Audio Replay following the conclusion of the conference until the fiscal fourth quarter results are released. The replay of the conference can be accessed by dialing 1-888-843-7419 or 1-630-652-3042 and entering 7702527#.

About Westell

Westell Technologies, Inc., headquartered in Aurora, Illinois, is a holding company for Westell, Inc. and Conference Plus, Inc. Westell, Inc. designs, distributes, markets and services a broad range of broadband customer-premises equipment, digital transmission, remote monitoring, power distribution and demarcation products used by telephone companies and other telecommunications service providers. Conference Plus, Inc. is a leading global provider of audio, web, video and IP conferencing services. Additional information can be obtained by visiting http://www.westell.com and http://www.conferenceplus.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, need for financing, a further economic weakness in the United States economy and telecommunications market, 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 effect of Westell's accounting policies, the need for additional capital, the effect of economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), retention of key personnel and other risks more fully described in the Company's SEC filings, including the Company's Form 10-K for the fiscal year ended March 31, 2010 under the section entitled 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      Nine Months ended December
                 31,                              31,

                 2010         2009                2010          2009

Revenue          $ 48,267     $ 42,796            $ 140,593     $ 143,662

Gross profit       14,833       13,771              46,926        43,550

Gross margin       30.7   %     32.2   %            33.4    %     30.3    %

Operating
expenses:

Sales &            4,599        3,996               13,758        13,392
marketing

Research &         3,611        3,202               10,613        10,279
development

General &          3,467        4,345        (1)    10,065        11,697     (1)
administrative

Restructuring      -            -                   -             609        (2)

Intangibles        165          161                 491           478
amortization

Total
operating          11,842       11,704              34,927        36,455
expenses

Operating          2,991        2,067               11,999        7,095
income

Other income       (26    )     (4     )            (1      )     67

Interest           (2     )     -                   (5      )     (4      )
(expense)

Income before      2,963        2,063               11,993        7,158
taxes

Income taxes       (26    )     673          (3)    309           443        (3)

Net income       $ 2,937      $ 2,736             $ 12,302      $ 7,601

Net income per
common share:

Basic            $ 0.04       $ 0.04              $ 0.18        $ 0.11

Diluted          $ 0.04       $ 0.04              $ 0.18        $ 0.11

Average number
of common
shares
outstanding:

Basic              68,280       67,912              67,616        68,214

Diluted            70,282       68,551              69,014        68,778




(1)  Includes a non-cash charge of $730,000 to correct errors in stock-based
     compensation expense related to prior fiscal years.

     The Company terminated approximately 50 employees primarily in the CNS and
(2)  ConferencePlus segments as a cost reduction action in the first quarter of
     fiscal 2010.

(3)  The Company recorded a $767,000 income tax benefit derived from a refund of
     alternative minimum tax credits.




Westell Technologies, Inc.

Condensed Consolidated Balance Sheet

(Dollars in thousands)

(Unaudited)

                                             Dec. 31,      March 31,

                                             2010          2010

Assets:

Cash and cash equivalents                    $ 85,691      $ 61,315

Short-term investments                         735           -

Accounts receivable, net                       21,737        17,683

Inventories                                    20,813        21,258

Prepaids and other current assets              4,650         4,276

Total current assets                           133,626       104,532

Property and equipment, net                    3,517         4,665

Goodwill                                       2,178         2,162

Intangibles, net                               3,603         4,063

Deferred income taxes and other assets         6,107         6,412

Total assets                                 $ 149,031     $ 121,834

Liabilities and Stockholders' Equity:

Accounts payable                             $ 28,147      $ 15,195

Accrued liabilities                            9,278         9,203

Deferred revenue                               325           860

Total current liabilities                      37,750        25,258

Deferred revenue, long-term                    151           174

Other long-term liabilities                    7,866         8,671

Total liabilities                              45,767        34,103

Total stockholders' equity                     103,264       87,731

Total liabilities and stockholders' equity   $ 149,031     $ 121,834




Westell Technologies, Inc.

Condensed Consolidated Statement of Cash Flows

(Dollars in thousands)

(Unaudited)

                                                      Nine Months ended Dec. 31,

                                                      2010          2009

Cash flows from operating activities:

  Net income                                          $ 12,302      $ 7,601

  Reconciliation of net income to net cash provided

  by (used in) operating activities:

  Depreciation and amortization                         2,067         2,942

  Stock-based compensation                              889           1,355

  Restructuring                                         -             609

  Other, net                                            (17    )      (182   )

  Changes in assets and liabilities:

  Accounts receivable                                   (4,040 )      3,195

  Inventory                                             476           2,014

  Accounts payable and accrued liabilities              12,738        (5,726 )

  Deferred revenue                                      (558   )      (1,575 )

  Prepaid and other current assets                      (375   )      3,916

  Other                                                 81            (60    )

 Net cash provided by (used in) operating               23,563        14,089
 activities

Cash flows from investing activities:

  Purchases of property and equipment                   (485   )      (800   )

  Purchases of short-term investments                   (735   )      -

 Net cash (used in) provided by investing               (1,220 )      (800   )
 activities

Cash flows from financing activities:

  Borrowing (repayment) of debt and leases payable      -             (42    )

  Proceeds from stock options exercised                 2,591         -

  Payment for subsidiary options tendered               (36    )      -

  Purchase of treasury stock                            (555   )      (1,430 )

 Net cash (used in) provided by financing               2,000         (1,472 )
 activities

Effect of exchange rate changes on cash                 33            198

Net increase in cash                                    24,376        12,015

Cash and cash equivalents, beginning of period          61,315        46,058

Cash and cash equivalents, end of period              $ 85,691      $ 58,073





Westell Technologies, Inc.

Segment Statement of Operations

(Amounts in thousands)

(Unaudited)

                  Three months ended December 31, 2010

                  CNS            OSP            CP             Unallocated      Total

Revenue           $  26,168      $  11,768      $  10,331      $ -              $  48,267

Gross profit         4,744          5,087          5,002         -                 14,833

Gross margin         18.1   %       43.2   %       48.4   %                        30.7   %

Operating
expenses:

 Sales &             1,292          1,413          1,894         -                 4,599
 marketing

 Research &          2,005          945            661           -                 3,611
 development

 General &           803            452            1,463         749               3,467
 administrative

 Restructuring       -              -              -             -                 -

 Intangibles         2              135            28            -                 165
 amortization

Operating            4,102          2,945          4,046         749               11,842
expenses (1)

Operating            642            2,142          956           (749   )          2,991
income (loss)

Other income         -              -              -             (26    )          (26    )

Interest             -              -              -             (2     )          (2     )
(expense)

Income taxes         -              -              -             (26    )          (26    )

Net income        $  642         $  2,142       $  956         $ (803   )       $  2,937
(loss)

                  Three months ended December 31, 2009

                  CNS            OSP            CP             Unallocated      Total

Revenue           $  20,512      $  12,407      $  9,877       $ -              $  42,796

Gross profit         3,566          5,563          4,642         -                 13,771

Gross margin         17.4   %       44.8   %       47.0   %                        32.2   %

Operating
expenses:

 Sales &             1,284          1,128          1,584         -                 3,996
 marketing

 Research &          2,099          557            546           -                 3,202
 development

 General &           821            464            1,518         1,542     (2)     4,345
 administrative

 Restructuring       -              -              -             -                 -

 Intangibles         -              133            28            -                 161
 amortization

Operating            4,204          2,282          3,676         1,542             11,704
expenses (3)

Operating            (638   )       3,281          966           (1,542 )          2,067
income (loss)

Other income         -              -              -             (4     )          (4     )

Interest             -              -              -                               -
(expense)

Income taxes         -              -              -             673               673

Net income        $  (638   )    $  3,281       $  966         $ (873   )       $  2,736
(loss)




(1)  Includes $0.1 million, $0.2 million and $0.4 million of depreciation and
     amortization expense in the CNS, OSP and CP segments, respectively.

(2)  Includes a non-cash charge of $730,000 to correct errors in stock-based
     compensation expense related to prior fiscal years.

(3)  Includes $0.3 million, $0.3 million and $0.4 million of depreciation and
     amortization expense in the CNS, OSP and CP segments, respectively.





Westell Technologies, Inc.

Segment Statement of Operations

(Amounts in thousands)

(Unaudited)

                  Nine months ended December 31, 2010

                  CNS            OSP            CP             Unallocated      Total

Revenue           $  65,788      $  43,609      $  31,196      $ -              $  140,593

Gross profit         12,343         19,324         15,259        -                 46,926

Gross margin         18.8   %       44.3   %       48.9   %                        33.4    %

Operating
expenses:

 Sales &             3,871          4,363          5,524         -                 13,758
 marketing

 Research &          5,881          2,847          1,885         -                 10,613
 development

 General &           2,231          1,545          4,260         2,029             10,065
 administrative

 Restructuring       -              -              -             -                 -

 Intangibles         4              403            84            -                 491
 amortization

Operating            11,987         9,158          11,753        2,029             34,927
expenses (1)

Operating            356            10,166         3,506         (2,029 )          11,999
income (loss)

Other income         -              -              -             (1     )          (1      )

Interest             -              -              -             (5     )          (5      )
(expense)

Income taxes         -              -              -             309               309

Net income        $  356         $  10,166      $  3,506       $ (1,726 )       $  12,302
(loss)

                  Nine months ended December 31, 2009

                  CNS            OSP            CP             Unallocated      Total

Revenue           $  73,138      $  39,232      $  31,292      $ -              $  143,662

Gross profit         11,519         17,038         14,993        -                 43,550

Gross margin         15.7   %       43.4   %       47.9   %                        30.3    %

Operating
expenses:

 Sales &             4,193          3,659          5,540         -                 13,392
 marketing

 Research &          6,865          1,745          1,669         -                 10,279
 development

 General &           2,482          1,532          4,628         3,055     (2)     11,697
 administrative

 Restructuring       414            46             149                             609

 Intangibles         -              394            84            -                 478
 amortization

Operating            13,954         7,376          12,070        3,055             36,455
expenses (3)

Operating            (2,435 )       9,662          2,923         (3,055 )          7,095
income (loss)

Other income         -              -              -             67                67

Interest             -              -              -             (4     )          (4      )
(expense)

Income taxes         -              -              -             443               443

Net income        $  (2,435 )    $  9,662       $  2,923       $ (2,549 )       $  7,601
(loss)




(1)  Includes $0.4 million , $0.6 million and $1.1 million of depreciation and
     amortization expense in the CNS, OSP and CP segments, respectively.

(2)  Includes a non-cash charge of $730,000 to correct errors in stock-based
     compensation expense related to prior fiscal years.

(3)  Includes $1.0 million, $0.8 million and $1.1 million of depreciation and
     amortization expense in the CNS, OSP and CP segments, respectively.




    Source: Westell Technologies, Inc.