WSTL Westell Technologies

Sequential revenue growth of 5% for the IBW segment

Westell Technologies, Inc. (NASDAQ: WSTL), a leading provider of high-performance wireless infrastructure solutions, today announced results for its fiscal 2017 first quarter ended June 30, 2016 (1Q17). Management will host a conference call to discuss financial and business results tomorrow, Thursday, August 11, 2016, at 9:30 AM Eastern Time (details below).

Consistent with the Company’s preliminary announcement on July 27, consolidated revenue in 1Q17 was $14.8 million, and comprised $6.1 million from the In-Building Wireless (IBW) segment, $4.1 million from the Intelligent Site Management and Services (ISMS) segment, and $4.6 million from the Communication Network Solutions (CNS) segment.

  1Q17 4Q16 1Q16 1Q17 1Q17 3 months ended 3 months ended 3 months ended vs. vs. 06/30/16 03/31/16 06/30/15 4Q16 1Q16 Consolidated Revenue $14.8M $20.9M $21.6M -29% -31% Gross Margin 30.8% 37.8% 39.1% -7.0% -8.3% Net Income (Loss) ($7.8M) ($5.1M) ($3.9M) ($2.7M) ($3.9M) Earnings (Loss) Per Share ($0.13) ($0.08) ($0.06) ($0.05) ($0.07) Non-GAAP Gross Margin (1) 40.5% 38.1% 39.3% 2.4% +1.2% Non-GAAP Net Income (Loss) (1) ($3.6M) ($2.6M) ($2.0M) ($1.0M) ($1.6M) Non-GAAP Earnings (Loss) Per Share (1) ($0.06) ($0.04) ($0.03) ($0.02) ($0.03) (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.  

“As indicated in our preliminary 1Q17 revenue announcement, a general slowdown in carrier spending and a strike-related work stoppage at a major customer adversely impacted first quarter results. That notwithstanding, the quarter included a 5% sequential revenue increase for our IBW segment,” said Tom Gruenwald, CEO and President of Westell Technologies. “We are now implementing the comprehensive expense reduction plan that we announced last month. We are also experiencing improved order momentum in July and early August, which should result in a sequential revenue increase in 2Q17.”

Cash and short-term investments were $25.3 million at June 30, 2016, compared to $29.7 million at March 31, 2016. The $4.4 million use of cash was driven primarily by the net loss in the quarter, partly offset by favorable working capital.

In-Building Wireless (IBW) Segment

IBW’s revenue decrease year-over-year was due primarily to lower sales of DAS Conditioners, while the sequential increase was due primarily to higher sales of Repeaters. IBW’s segment gross margin in 1Q17, excluding one-time charges, was 39.0%, a decrease compared to 1Q16 due primarily to the lower revenue, and an increase compared to 4Q16 due primarily to a more favorable mix.

  1Q17 4Q16 1Q16 1Q17 1Q17 3 months ended 3 months ended 3 months ended vs. vs. 06/30/16 03/31/16 06/30/15 4Q16 1Q16 IBW Segment Revenue $6.1M $5.8M $9.1M 5% -33% IBW Segment Gross Margin (1) 16.2% 35.6% 44.1% -19.4% -27.9% IBW Segment R&D Expense $2.4M $2.4M $3.2M $—M ($0.8M) IBW Segment Profit (Loss) ($1.4M) ($0.3M) $0.8M ($1.1M) ($2.2M) (1) 1Q17 IBW Segment Gross Margin was 39.0% when excluding a charge of $1.4 million related to the previously announced discontinuation of the ClearLink DAS and stock-based compensation. Please refer to the GAAP to non-GAAP reconciliation of IBW segment gross margin at the end of the Segment Statement of Operations section.  

Intelligent Site Management & Services (ISMS) Segment

ISMS’s revenue decrease year-over-year was due primarily to lower Services revenue, while the sequential decrease was driven largely by lower sales of ISM Remote units. While ISMS’s gross margin in 1Q17 was generally consistent with 1Q16, it was down compared to 4Q16 due primarily to lower revenue.

    1Q17   4Q16   1Q16   1Q17   1Q17 3 months ended 3 months ended 3 months ended vs. vs.   06/30/16   03/31/16   06/30/15   4Q16   1Q16 ISMS Segment Revenue   $4.1M   $5.2M   $4.5M   -21%   -9% ISMS Segment Gross Margin   48.8%   53.6%   49.1%   -4.8%   -0.3% ISMS Segment R&D Expense   $1.3M   $1.5M   $1.3M   ($0.2M)   $—M ISMS Segment Profit (Loss)   $0.7M   $1.3M   $0.9M   ($0.6M)   ($0.2M)  

Communication Network Solutions Group (CNS) Segment

CNS’s revenue decrease year-over-year was due to lower revenues across all products in this segment, with lower sales of Tower Mounted Amplifiers (TMAs) representing the largest decline. On a sequential basis, the largest contributor to the lower revenue was the decrease in sales of Integrated Cabinets. CNS’s gross margin improvement when compared to both 1Q16 and 4Q16 was due primarily to a more favorable mix.

    1Q17   4Q16   1Q16   1Q17   1Q17 3 months ended 3 months ended 3 months ended vs. vs.   06/30/16   03/31/16   06/30/15   4Q16   1Q16 CNS Segment Revenue   $4.6M   $9.8M   $8.0M   -53%   -43% CNS Segment Gross Margin   34.1%   30.6%   27.7%   +3.5%   +6.4% CNS Segment R&D Expense   $0.6M   $0.8M   $0.6M   ($0.2M)   $—M CNS Segment Profit (Loss)   $0.9M   $2.2M   $1.6M   ($1.3M)   ($0.7M)  

Conference Call Information

Management will discuss financial and business results during the quarterly conference call on Thursday, August 11, 2016 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 August 11, 2016 by calling 888-206-4065 no later than 8:15 AM Central Time (9:15 AM Eastern Time) and providing the operator confirmation number 43011348.

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 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 comprehensive set 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, 2016, 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 June 30, March 31, June 30, 2016 2016 2015 Revenue $ 14,816 $ 20,904 $ 21,570 Gross profit 4,565 7,893 8,429 Gross margin 30.8 % 37.8 % 39.1 % Operating expenses: R&D 4,277 4,713 5,086 Sales and marketing 3,381 4,608 3,196 General and administrative 2,345 1,747 2,969 Intangible amortization 1,200 1,305 1,399 Restructuring (36 ) 731 (1) 17 Long-lived assets impairment 1,181   (2) —   —   Total operating expenses 12,348   13,104   12,667   Operating profit (loss) (7,783 ) (5,211 ) (4,238 ) Other income (expense), net 17   107   38   Income (loss) before income taxes and discontinued operations (7,766 ) (5,104 ) (4,200 ) Income tax benefit (expense) (2 ) 27   62   Net income (loss) from continuing operations (7,768 ) (5,077 ) (4,138 ) Income from discontinued operations (3) —   1   272   Net income (loss) $ (7,768 ) $ (5,076 ) $ (3,866 ) Basic net income (loss) per share: Basic net income (loss) from continuing operations $ (0.13 ) $ (0.08 ) $ (0.07 ) Basic net income (loss) from discontinued operations —   —   —   Basic net income (loss) (4) $ (0.13 ) $ (0.08 ) $ (0.06 ) Diluted net income (loss) per share: Diluted net income (loss) from continuing operations $ (0.13 ) $ (0.08 ) $ (0.07 ) Diluted net income (loss) from discontinued operations —   —   —   Diluted net income (loss) (4) $ (0.13 ) $ (0.08 ) $ (0.06 ) Weighted-average number of common shares outstanding: Basic 61,016 60,847 60,703 Diluted 61,016 60,847 60,703 (1)   The Company recorded restructuring expense primarily relating to severance costs for terminated employees. (2) Impairment related to long-lived assets associated with ClearLink DAS. (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)

    June 30, 2016 March 31, 2016 (Unaudited)   Assets Cash and cash equivalents $ 15,178 $ 19,169 Short-term investments 10,090 10,555 Accounts receivable, net 10,885 16,361 Inventories 13,732 13,498 Prepaid expenses and other current assets 1,780   1,900 Total current assets 51,665   61,483 Land, property and equipment, net 2,809 3,977 Intangible assets, net 19,188 20,388 Other non-current assets 173   183 Total assets $ 73,835   $ 86,031 Liabilities and Stockholders’ Equity Accounts payable $ 5,087 $ 7,856 Accrued expenses 5,425 5,932 Accrued restructuring 1,090 1,537 Contingent consideration payable 47 311 Deferred revenue 989   1,601 Total current liabilities 12,638 17,237 Deferred revenue non-current 1,400 1,236 Deferred income tax liability 12 10 Accrued restructuring non-current 271 550 Other non-current liabilities 276   314 Total liabilities 14,597 19,347 Total stockholders’ equity 59,238   66,684 Total liabilities and stockholders’ equity $ 73,835   $ 86,031  

Westell Technologies, Inc.

Condensed Consolidated Statement of Cash Flows

(Amounts in thousands)

(Unaudited)

  Three months ended June 30, 2016   2015 Cash flows from operating activities: Net income (loss) $ (7,768 ) $ (3,866 ) Reconciliation of net loss to net cash used in operating activities: Depreciation and amortization 1,585 1,696 Long-lived assets impairment 1,181 — Stock-based compensation 406 457 Restructuring (36 ) 17 Deferred taxes 2 110 Exchange rate loss (gain) 6 (6 ) Changes in assets and liabilities: Accounts receivable 5,470 (2,607 ) Inventory (234 ) 1,420 Accounts payable and accrued expenses (4,144 ) 2,521 Deferred revenue (448 ) (275 ) Other 128   (76 ) Net cash provided by (used in) operating activities (3,852 ) (609 ) Cash flows from investing activities: Net maturity (purchase) of short-term investments and debt securities 465 7,835 Proceeds from sale of land — 264 Purchases of property and equipment, net (396 ) (455 ) Net cash provided by (used in) investing activities 69   7,644   Cash flows from financing activities: Purchase of treasury stock (84 ) (49 ) Payment of contingent consideration (127 ) (167 ) Net cash provided by (used in) financing activities (211 ) (216 ) (Gain) loss of exchange rate changes on cash 3   2   Net increase (decrease) in cash and cash equivalents (3,991 ) 6,821 Cash and cash equivalents, beginning of period 19,169   14,026   Cash and cash equivalents, end of period $ 15,178   $ 20,847    

Westell Technologies, Inc.

Segment Statement of Operations

(Amounts in thousands)

(Unaudited)

 

Sequential Quarter Comparison

    Three months ended June 30, 2016 Three Months ended March 31, 2016 IBW   ISMS   CNS   Total IBW   ISMS   CNS   Total Revenue $ 6,121   $ 4,139   $ 4,556   $ 14,816   $ 5,838   $ 5,245   $ 9,821   $ 20,904   Gross profit 994   2,019   1,552   4,565   2,077   2,809   3,007   7,893   Gross margin (1) 16.2 % 48.8 % 34.1 % 30.8 % 35.6 % 53.6 % 30.6 % 37.8 % R&D expenses 2,364   1,294   619   4,277   2,421   1,471   821   4,713   Segment profit (loss) $ (1,370 ) $ 725   $ 933   $ 288   $ (344 ) $ 1,338   $ 2,186   $ 3,180   (1) 1Q17 IBW Segment Gross Margin was 39.0% when excluding a charge of $1.4 million related to the previously announced discontinuation of the ClearLink DAS and stock-based compensation. Please refer to the GAAP to non-GAAP reconciliation of IBW segment gross margin at the end of the Segment Statement of Operations section.  

Year-over-Year Quarter Comparison

    Three months ended June 30, 2016 Three months ended June 30, 2015 IBW   ISMS   CNS   Total IBW   ISMS   CNS   Total Revenue $ 6,121   $ 4,139   $ 4,556   $ 14,816   $ 9,070   $ 4,505   $ 7,995   $ 21,570   Gross profit 994   2,019   1,552   4,565   4,001   2,211   2,217   8,429   Gross margin (1) 16.2 % 48.8 % 34.1 % 30.8 % 44.1 % 49.1 % 27.7 % 39.1 % R&D expenses 2,364   1,294   619   4,277   3,162   1,281   643   5,086   Segment profit (loss) $ (1,370 ) $ 725   $ 933   $ 288   $ 839   $ 930   $ 1,574   $ 3,343   (1) 1Q17 IBW Segment Gross Margin was 39.0% when excluding a charge of $1.4 million related to the previously announced discontinuation of the ClearLink DAS and stock-based compensation. Please refer to the GAAP to non-GAAP reconciliation of IBW segment gross margin at the end of the Segment Statement of Operations section.  

Reconciliation of GAAP to non-GAAP IBW Segment Gross Margin

  Three months ended June 30, 2016 Revenue   Gross Profit   Gross Margin GAAP - IBW segment $ 6,121 $ 994 16.2 % ClearLink DAS E&O (2) — 1,389 Stock-based compensation (3) —   3   Non-GAAP - IBW segment $ 6,121   $ 2,386   39.0 % (2) Excess and Obsolete inventory charges on ClearLink DAS inventory and firm purchase commitments. (3) 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 June 30, 2016 Three Months ended March 31, 2016 Three Months ended June 30, 2015 Revenue   Gross Profit   Gross Margin Revenue   Gross Profit   Gross Margin Revenue   Gross Profit   Gross Margin GAAP - Consolidated $ 14,816 $ 4,565 30.8 % $ 20,904 7,893 37.8 % $ 21,570 $ 8,429 39.1 % Deferred revenue adjustment (1) 63 63 63 63 73 73 ClearLink DAS E&O (2) — 1,389 — 59 — — Stock-based compensation (3) —   6   —   (29 ) —   (3 ) Non-GAAP - Consolidated $ 14,879   $ 6,023   40.5 % $ 20,967   $ 7,986   38.1 % $ 21,643   $ 8,499   39.3 %         Three months ended June 30,   March 31,   June 30, 2016 2016 2015 GAAP consolidated operating expenses $ 12,348 $ 13,104 $ 12,667 Adjustments: Stock-based compensation (3) (400 ) (320 ) (460 ) Long-lived asset impairment (4) (1,181 ) — — Amortization of intangibles (5) (1,200 ) (1,305 ) (1,399 ) Restructuring, separation, and transition (6) 36   (799 ) (164 ) Total adjustments (2,745 ) (2,424 ) (2,023 ) Non-GAAP consolidated operating expenses $ 9,603   $ 10,680   $ 10,644         Three months ended June 30,   March 31,   June 30, 2016 2016 2015 GAAP consolidated operating profit (loss) $ (7,783 ) $ (5,211 ) $ (4,238 ) Adjustments: Deferred revenue adjustment (1) 63 63 73 ClearLink DAS E&O (2) 1,389 59 — Stock-based compensation (3) 406 291 457 Long-lived asset impairment (4) 1,181 — — Amortization of intangibles (5) 1,200 1,305 1,399 Restructuring, separation, and transition (6) (36 ) 799   164   Total adjustments 4,203   2,517   2,093  

Non-GAAP consolidated operating profit(loss) from continuing operations

$ (3,580 ) $ (2,694 ) $ (2,145 ) Depreciation 385   458   297  

Non-GAAP consolidated Adjusted EBITDAfrom continuing operations

$ (3,195 ) $ (2,236 ) $ (1,848 )   Three months ended June 30,   March 31,   June 30, 2016 2016 2015 GAAP consolidated net income (loss) $ (7,768 ) $ (5,076 ) $ (3,866 ) Adjustments: Deferred revenue adjustment (1) 63 63 73 ClearLink DAS E&O (2) 1,389 59 — Stock-based compensation (3) 406 291 457 Long-lived asset impairment (4) 1,181 — — Amortization of intangibles (5) 1,200 1,305 1,399 Restructuring, separation, and transition (6) (36 ) 799 164 (Income) loss from discontinued operations (7) —   (1 ) (272 ) Total adjustments 4,203   2,516   1,821   Non-GAAP consolidated net income (loss) $ (3,565 ) $ (2,560 ) $ (2,045 )

GAAP consolidated net income (loss)per common share:

Basic and diluted $ (0.13 ) $ (0.08 ) $ (0.06 )

Non-GAAP consolidated net income(loss) per common share:

Basic and diluted $ (0.06 ) $ (0.04 ) $ (0.03 )

Average number of common sharesoutstanding:

Basic and diluted 61,016 60,847 60,703  

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.

    (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) Excess and Obsolete inventory charges on ClearLink DAS inventory and firm purchase commitments. (3) Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards. (4) Impairment related to long-lived assets associated with ClearLink DAS. (5) Amortization of intangibles is a non-cash expense arising from the acquisition of intangible assets. (6) 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. (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/20160810006147/en/

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