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Westell Technologies, Inc. Message Board

  • iletitride iletitride Oct 22, 2009 1:19 PM Flag

    CNS Business

    I guess that I got my answer on the call. The Ultraline placements are still losing money. Cooper indicated that the margin increase in CNS was due to a favorable product mix. This would mean non-FIOS related products such as base modems in AT&T, etc. If you take a look at the CNS Gross Profit Margin at 17%, you would expect a restatement of revenue of over $37 MM to equate to an increase of approx. $0.09/share ($37mm X's 17% divided by 70 MM shares), given the fact that Operating Expenses were already accounted for during the same period. In fact we saw no earnings change with the increase in topline, so one can deduce that Ultraline is still losing money based on ASP versus cost of production.

    This where the sell-off is rooted. It appears as though WSTL is selling Ultraline at a loss to hopefully one day gain this "software" add-on. I was glad to see the analysts trying to triangulate the software potential. In reality, until WSTL can show some tangible evidence that there will actually be software revenue, I think that the CNS division will continue to hold down the stock price. Again, if they shut down CNS tomorrow, the stock is worth much more than $1.20 and change. The company should exit the current quarter with $0.80/share in cash with no debt. The other two divisions, C-Plus and ONS, certainly are worth more than $0.40/share on annual revenue of $80 MM and 40% plus margins. So it is clear that CNS has a negative impact on valuation.

    I agree with Phenne on the divestiture. Unless WSTL begins seeing software revenue or can prove to the Street that this will materialize any time soon, their best course of action is to divest the business. While I think the current price is a 75 % discount to the true value of cash and the two other divisions, C-Plus and ONS, the Street does not have patience and will not wait to see "IF" the software story ever develops. There are too many other opportunities out there. Gilbert and crew have to serve up something more tangible on the next call. Until then, I am afraid that this stock will return to its pattern of low price valuation on low trading volume.

    Additionally, I have to admit that Cooper needs some help with Investor relations. The "softness" discussed in the press release was not necessary and certainly cast a cloud on an otherwise good story on the financial turnaround of this company. They could have simply maintained there previous position which did not provide any guidance for the next quarter(s). Seems awfully strange to begin giving "going forward" guidance. They could have stated the following instead: "The company anticipates profitable operations and cash flow for the remainder of the year in spite of continued challenging economic conditions"

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    • O.K., I'm probably going to regret posting this, because it is probably wrong. I know what you are saying about the $37m of deferred revenue from the CNS segment (Ultraline stuff), and that you would think it would add much more to the bottom line, which it doesn't. But the CNS business, although still losing some money, has been getting better.

      I don't know what constitutes “operating profits” in this discussion, but I gathered the “Sales and Marketing”, “Research and Development”, and “General and Administrative” costs for the CNS equipment segment from the 10Q's, and then compared them with the CNS “formerly non-GAAP gross profit” numbers from the quarterly results press releases. These numbers reflect the deferred revenue profits, no matter how slim they are. (For instance, instead of using the “reported” $3.3m CNS gross profit from the first quarter 2010 form 10Q, I'm using the "formerly non-GAAP $4.1m” instead. Yes, the deferred revenue of $13.3m only added about $0.8m of gross profit, but it is something).

      Starting with the second quarter of fiscal year 2009, (2Q09), I get the following for the CNS segment.

      2Q09 (Sept 30, 2008)....Gross Profit.....1.9m......Costs.....8.0m.....Operating loss.....6.1m
      3Q09 (Dec 31, 2008).....Gross Profit......2.3m.....Costs.....5.3m.....Operating loss....3.0m
      4Q09 (Mar 31, 2009).....Gross Profit......3.2m.....Costs.....5.9m.....Operating loss....2.7m
      1Q10 (June 30, 2009)....Gross Profit......4.1m......Costs.....4.9m.....Operating loss....0.8m

      (“Costs” are the total CNS expenditures for “Sales and Marketing”, “Research and Development”, and “General and Administrative” for the quarter, taken from the 10Q filings).

      The second quarter of 2010 shows “gross profit” of 4.2m but until the 10Q is out, who knows what the operating loss will be. But I think the trend is positive. (Maybe a CNS operating loss of less than a half million for 2Q10 perhaps?) Yes, the margins are really poor, but it looks like CNS isn't burning cash like it was at the start. (But the last paragraph of the press release from 10-21-2009 probably sends that in reverse. I guess the CNS product mix determines how far into reverse it goes).

      Honestly speaking, I don't think the software thing will “save” CNS. The idea of Westell selling equipment at a loss specifically in the belief that (the customer using) this equipment will help in Westell selling software is a bit of a long shot. (I think there are software companies working specifically on “smart home” types of things). And I also remember reading that.....

      “less than 15% of people in Internet-connected households in the U.S. are very interested in
      controlling their home's lights or thermostat over the Internet, according to a survey of 1,000
      households by research company Parks Associates. Only slightly more are very interested in
      monitoring Web cams”...)

      • 1 Reply to dee_ocotillo_man
      • “less than 15% of people in Internet-connected households in the U.S. are very interested in
        controlling their home's lights or thermostat over the Internet".

        Those people are plain WRONG. With a minimal investment, they could cut by 20% their energy bill by monitoring and switching off all the unused appliances (e.g. an IDLE Nespresso machine is consuming 15W).

        This is a booming business in Europe, and it has to be, given the impetus toward ecologically responsible consumers, cutting carbon emissions on climatic change and so on.

    • I have to think that Cooper knows the software revenue will come soon. They can't build the dollars into their model / forecasts until they get an addendum to their contract. Gilbert has said that he would not grow for the sake of growing. He stated that he would not chase revenue.

      What bothers me more than anything is the press release. I've always heard that a lot of the trading around Westell is done by computers that get in and out quickly. My guess is that poor press release panicked some people and then as they stock went down, it triggered sell orders throughout the day.

      Hopefully people will go back and listen to the conf call and hear Gilbert say that the plan is to be profitable in each of the next two quarters. He even repeated that.

      Here's a company with .80 in cash per share trading at 1.30. Makes no sense. I agree with you and Phenne - sell the company if you cant manage the share price. That's all I care about.


      ALL JUST MY OPINION.

      • 1 Reply to wasssssupppppp
      • I agree...Cooper and Gilbert have to know a lot more than they are saying about this software play....There was times on the call today that I had a feeling they wanted to say more but couldn't.

        Also the talk about being profitable for the rest of the year, and the fact that Gilbert thought it necessary to repeat, and having a nearly 6 month backlog means a lot to me...You don't hear or see many companies giving guidance or talking about visibility out that far....You basically have to know something to be that bold.

        I did find it intersting that on one side Gilbert talked about "softness in top line" but also mentions having an "order backlog" of nearly six month and than later they made mention that they are taking market share.

        I think that is a strange combination of statements especially since it now looks like Verizon is now on another promotional involving the quadruple play..I received an add in last Sundays paper and saw a new TV spot during the Yankee-Angels game last night....This would be in the Northeast and right in Actiontec's area...If Westell is taking market share what area is it coming from???..and is it because of product superiority, manufacturing capability or is it something as simple as somebody just not being able to take the heat???...I think we need a better answer on the market share question.

        As for the stock action, yesterday seemed a bit programmed for me...It was like a price target was set between about $1.20 and $1.30 and that was it....There were over 3.5 millions shares traded yesterday and they all wanted in or out in rougly the same 10 to 15 cent area???...I don't think so....Also of note was the down times during the day where there was no trading at all going on...There were times yesterday where 5 to 10 minutes would go by without a share traded....Not the kind of minute chart you would expect from a stock down 25% on 7 times volume....Just my opinion on a few observation from yesterday.

    • This was one the better analysis have seen, specially about Gilbert comment of "softness". He shot down everything else.

    • Think we'll stay at the current price or do you see upside by year end

    • As far as the press release, they can't be that ignorant not to realize what would happen. What was their motivation?

      Only Westell can have two profitable quarters, announce that they will be profitable in the next two quarters, and sell off the way have.

 
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