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Edited Transcript of WSTL earnings conference call or presentation 2-Aug-18 1:30pm GMT

Q1 2019 Westell Technologies Inc Earnings Call

Aurora Aug 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Westell Technologies Inc earnings conference call or presentation Thursday, August 2, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alfred S. John

Westell Technologies, Inc. - President & CEO

* Thomas P. Minichiello

Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary

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Conference Call Participants

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* Marc Silk

* Michael James Latimore

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Steve Busch

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Presentation

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Operator [1]

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Good morning, and welcome to the Westell Fiscal Year 2019 First Quarter Earnings Call. My name is Christine, and I will be your operator for today's call. (Operator Instructions) Please note that this conference call is being recorded.

I will now turn the call over to Tom Minichiello, Westell's Chief Financial Officer. You may begin.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [2]

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Thank you, Christine. Good morning, and welcome to our conference call to discuss the fiscal year 2019 first quarter results for Westell Technologies. The news release we issued yesterday afternoon is posted on our website, westell.com. On this call, Stephen John, Westell's President and Chief Executive Officer, will begin with the discussion of our business and growth initiatives. I'll then update you on our financial results for the quarter and will conclude by taking questions.

Before we begin, please note that our presentation and discussion contain forward-looking statements about future results, performance or achievements, financial and otherwise. Words such as should, believe, expect, trend and similar expressions are intended to identify such forward-looking statements. These statements reflect management's current expectations, estimates and assumptions. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Westell's actual results, performance or achievements to differ materially from those discussed. A description of the factors that may affect our future results is provided in the company's SEC filings, including Form 10-K for the fiscal year ended March 31, 2018, under the section Risk Factors.

The forward-looking statements made in this presentation are being made as of the date and time of this conference call. Westell disclaims any obligation to update or revise any further forward-looking statements based on new information, future events or other factors.

Please also note that we present non-GAAP financial information in our news releases because we believe that non-GAAP measures provide meaningful supplemental information to both management and investors. These non-GAAP information reflect the company's core ongoing operating performance and facilitates comparisons across reporting periods. Our discussion of results today will include non-GAAP financial measures. We've provided reconciliations to the most comparable GAAP measures in our news release.

I will now turn the call over to Steve.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [3]

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Thank you, John. Good morning, everyone. In fiscal first quarter, thanks to the efforts of the Westell team, revenue rebounded, gross margin was strong again at 45.5% and non-GAAP operating profit of $1.1 million resulted in a very strong operating margin of 8.6%. Tom will go over the financial results in more detail.

Let me take you through my initial impressions after 10 weeks here at Westell and the direction we are pursuing for future growth. As mentioned on our last call, it's a time of tremendous change in the industry. I see growth opportunities for all 3 business units in our existing and adjacent markets where we can leverage Westell's solid reputation for high-quality products and solutions and the strong customer relationships developed over many years.

The industry, which continues to be characterized by ever increasing bandwidth needs, combined with more and more connected devices, is in the early stages of a new wave of infrastructure investment. Network densification, in-building wireless expansion, deep optical fiber access, 5G and IoT are at the heart of this new way. The good news for us, many of these initiatives are projected to reshape the network edge, Westell's core strength.

Our customers are designing new more efficient network architectures not only for today's needs, but also to lay the foundation for the eventual rollout of 5G. This includes Centralized Radio Access Networks, or CRAN, deeper fiber access solutions, densification, small cells, fixed wireless broadband access and expanded in-building coverage for commercial applications as well as public safety. These are examples of opportunities for us to significantly grow the business.

Our goal was to drive growth, with each business unit having at least one meaningful growth driver leading the way. This will require us to aggressively pursue smart acquisitions as well as develop strategic OEM and OEM partnerships, all of which are currently in process. This will also require us to do a better job of generating incremental revenue from our existing base business through refined go-to-market approaches, expansion into adjacent markets and more consistent and innovative development of product enhancements and extensions.

Let me start with CNS. A good example of organic revenue growth is the expanded line of higher capacity, power distribution fuse panels that we recently introduced. These products are well suited for CRAN and small cell deployments, enabling us to successfully expand in an existing market.

In first quarter, sales of power distribution product line achieved the highest level in over 2 years, and we expect this trend to continue. We also see a much larger CNS growth opportunity in the fiber broadband access market. While you may not think of Westell as a player in this area, with our line of fiber demarcation panel sold as stand-alone units and as part of an integrated cabinet, fiber connectivity has been in our DNA for several years.

Last quarter, George Wakileh, former Vice President of Business Development at Tii Technologies, joined Westell and is leading our product development efforts in the fiber access solutions space.

As announced earlier this week, we released the first products in a family of fiber management devices. These first products for which we have received initial orders include a modular high-density cassette system and other related componentry. We're also seeking OEM and OEM partnerships to complement and accelerate these efforts. We expect this to significantly expand Westell's addressable market where our customers have made public their access build out plans in high-density areas with recognized optical fiber and specialized termination assemblies as necessary components.

Our ISM business, while relatively steady and consistently profitable over the past several years, has revolved around 3 longstanding accounts that make up the large majority of the revenue. Remote monitoring is an attractive solution, providing favorable economics and real-time information to our customers. I see ISM growth opportunities in a number of areas. First, refining our go-to-market approach within our existing cell power and telco service provider customers. Second, expanding into adjacent verticals such as cable service providers, increasing emphasis on development of product enhancements and extensions, including support for low-cost IoT sensors and pursuing inorganic growth opportunities.

Now to IBW. I believe this is the business with the greatest potential for growth. While the market for full scale DAS installations in large venues like stadiums and sports arenas has matured, the demand for reliable in-building coverage continues to accelerate unabated. We've previously talked about in-building wireless for public safety, a market we believe is in the early stages relative to its overall potential. And while we have gained good traction in this market with our initial but limited set of products, additional growth will require us to broaden the product portfolio.

With respect to the greater in-building market, I see growth opportunities in a number of areas, including enterprise, small cell and private LTE networks via the emerging Citizens Broadband Radio Service, or CBRS. As with other businesses, we are actively engaging in acquisition and partnership opportunities to drive growth for IBW.

As it relates to growing through acquisition, we are pursuing opportunities that are natural extensions of our 3 business units where individual deals could add annual revenues in the $10 million range give or take. We had a lot going on and much to accomplish. Our #1 mission will be to profitably expand the business and drive increased shareholder value.

With that, let me turn the call back over to Tom.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [4]

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Thank you, Steve. Let me take you through our formal results beginning with the revenue. For the first fiscal quarter ended June 30, 2018, revenue was $13 million, an increase of 17% when compared to the $11.1 million in the prior quarter ended March 31. All 3 business segments contributed to the second quarter increase, led by ISM.

Let's review the revenue performance for each business. For IBW, sequential quarter revenue was up 12%, driven primarily by public safety repeaters, which achieved its highest quarterly revenue level since we entered this key growth market in early fiscal 2017. In addition, commercial repeaters and DAS conditioners rebounded slightly.

ISM performed the strongest of the 3 business segments, up 22% compared to the quarter before. Sales of remote units, which have been network devices we use for on-site processing, achieved the highest level since the December 2013 quarter. This growth was driven by higher demand from an existing domestic customer to expand monitoring within their traditional network and to extend the remote monitoring capabilities to their newer CRAN deployments.

For CNS, sequential quarter revenue was up 15%, driven by increased sales of our power distribution product line, including for CRAN build-outs and small cell deployments. As Steve mentioned, sales of our power products achieved the highest quarterly level in over 2 years, and we expect this trend to continue.

Moving on to the rest of the operating results. We continued in the June quarter to exceed our gross margin target of 40% or greater. It was 45.5%. Non-GAAP operating expenses in fiscal 1Q were $4.8 million compared to $4.7 million in the quarter before. The operating leverage in our current business model created from gross margin expansion and ongoing expense management resulted in a significantly higher non-GAAP operating profit margin of 8.6% compared to last quarter 3.5%. The 8.6% we achieved this quarter also exceeded the 7.1% we achieved for the full 2018 fiscal year ended March 31, 2018.

Net income and EPS on a non-GAAP basis was $1.2 million and $0.08 per share compared to $400,000 and $0.03 per share the quarter before. Net income and EPS on a GAAP basis was near breakeven, consistent with the full 2018 fiscal year. On an adjusted EBITDA basis, which is our non-GAAP operating profit less depreciation, Westell's business achieved positive adjusted EBITDA for the seventh consecutive quarter. 1Q '19 adjusted EBITDA was $1.3 million or 9.8%, even better than the 8.4% we achieved for the full 2018 fiscal year.

Turning to the balance sheet. Our cash and short-term investments totaled $28.5 million at June 30, 2018, compared to $27.7 million at March 31, 2018. The 1Q cash decrease was primarily due to working capital needs in the quarter and share repurchases.

Under the stock repurchase program authorized by our Board of Directors in May of 2017 and as part of open-market 10b5-1 plans, Westell has repurchased 250,900 shares at an average price of $2.88 per share for a total of $724,000.

Before I move on to Q&A, let me summarize. We continue to maintain tremendous operating leverage within the current business model, with gross margins consistently above the 40% target and adjusted EBITDA margins ranging from the high single-digits to double-digit percentages. We have opportunities to achieve meaningful growth for Westell and are pursuing the course that we expect to include acquisitions and partnerships complemented by organic growth. Our primary focus is growing the business and driving shareholder value.

So with that, we'd now like to open up the call for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Mike Latimore of Northland Capital.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [2]

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Yes, the profitability looks great in the quarter there. I guess in terms of the -- just sort of evaluating the company strategy, I guess you came on board relatively recently. How long do you sort of give yourself to sort of fully flesh out what the kind of strategic plan will be for the company? Obviously, you've got some good insights here and initial view. But when do you think they'll done with sort of the comprehensive strategic review?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [3]

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Before we get to your questions, we just want to make one correction on the overview of the financials. I think I misspoke and said $28.5 million in cash at June 30, and it's $25.8 million as noted on our press release, and I just want to clear that up for the record. Okay, thank you.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [4]

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Well, thanks for the question, Mike, yes, having been here only 10 weeks, I'm obviously just getting my arms around the strategy, but I think it's -- we're seeing some pretty good clarity on strategy around what we've been talking about for several quarters now. We have some very interesting rapid OEM opportunities. And as I said in my comments, where I see real opportunity is in the wireless and building space. There's growing demand, ever increasing need for connectivity in-building. If you look at utilization statistics for mobile users, it's significantly shifting to stationary in-building utilization. So we believe that's a really strong area. I'm putting a lot of emphasis on OEM and acquisition opportunities in that space, and we've got some real interesting developments there. I think, overall, how I categorize my vision is we're really looking to increase each of our business units by finding a product strategy that gives us double-digit growth to overcome some of the declining revenues we have in certain aspects of each of the business units. So from an overall standpoint, I would say that's kind of the high-level strategy. And as we go through this quarter, we're developing the legs underneath that stool to support that strategy.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [5]

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I may be characterizing this incorrectly, but it seem like over the past year or so, the -- there was a focus on sort of more -- doing more in a public safety arena and maybe even outside the traditional telco space. I guess, any sort of general characterizations of that dynamic going forward?

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Alfred S. John, Westell Technologies, Inc. - President & CEO [6]

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Sure. I -- yes, we still see significant opportunity in public safety. As I mentioned, I think it's still in its early stages of the development. With some of the recent announcements around FirstNet and what AT&T is doing in that space, we're seeing we're at a ground swell of interest in public safety. And we just sent out some notices that we'll be releasing, by the end of a quarter, a brand-new public safety product in the -- as a Class A repeater, and we'll be showing that in the upcoming public safety show in Las Vegas, I think, next week. So we do see growth there. I think it's small, but growing addressable market, and we believe we're going to be a significant player there.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [7]

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Got it. And then just from a gross margin standpoint, you had been in the -- more in the mid-40s as opposed to the 40%-plus range for a while now. I guess, any thought on revising your gross margin targets here? Or should we still think of it as 40% plus?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [8]

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Yes, Mike, this is Tom. We still think of it as 40% plus. But you're right, we've been -- we finished last year at just -- I think just above 43% for the full year. So we are probably going to maintain in that range. We did 45.5% this quarter. As we do more OEM products going forward in the mix that -- the good news there is it doesn't require a lot of expensive R&D. The flip side is that the margins will tend to be a little lower than if it was a product that we developed internally. So there's some -- in the forecast, there's some couple of percentage points, maybe drop from where we are as that -- those products entered into the mix a little bit more. Of the same token, we continue to do cost reductions and we continue to look at ways to take more cost out of the cost of goods sold. And so we continue to like that greater than 40% target, but we also like 43%, 44%, 45%. And of course, it'll always depend on the mix in any given period, right?

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [9]

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Yes, that makes sense. Can I -- last one, the goal is to get to, say, double-digit organic growth, let's say. I guess, one, that's like -- that will be first question, is the goal to get there to double-digit growth organically and then later on acquisition on top of that. And second, do you need to increase kind of spending your OpEx to get to that goal?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [10]

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Yes, so we're at 40 -- we're $4.8 million and -- which is down significantly from the previous quarters and previous years. But yes, I think we've reached the point, Mike, where you're probably going to see some incremental increases in that number likely up around the $5 million range. You'll see it -- some of it in sales and marketing, but you'll see some of it in R&D. For example, in CNS you notice the number has started to increase because we're doing more internally there with our fiber access solutions, and we'll continue to see an increase in that spending. So what's likely is upwards of 5%, maybe even slightly higher than that.

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Michael James Latimore, Northland Capital Markets, Research Division - MD & Senior Research Analyst [11]

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Okay. And then I just -- your -- this is a -- or the -- early in the year and you're going through a strategic review, but any general guidance on how we should think about the year itself? I mean, should we think about, I don't know, a flat year revenue line or something like that?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [12]

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I think the way to think about that, Mike, we don't give the guidance, as you know, quantitatively. But qualitatively, let me just say this, we've got a lot going on right now. We have internal things that we're working on. The fiber access is something that we're going to grow from a small base, and so there's some level of not wanting to give a number on that quite yet. The -- and then acquisitions and partnerships, those will be events that occur. We've got a pipeline of these things. We're working on some things right now. But, those can hit, not hit, and we expect to have -- few have been hit relatively quickly here before the calendar year is out. So if you give yourself -- when you got all of this going on, it's -- to give you some sense of the full year at this point, quantitatively would be probably not a good thing to do, but it's growth. I mean we're focused on growing significantly from where we are today.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [13]

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I will address a couple trends for you, Mike. We are seeing a little bit of uptick in UDIT orders. We're a little bit beyond what our expectations were. There's continued strength, as we mentioned, in our power distribution. We're shipping, hopefully, our first fiber distribution products this quarter. We have orders in hand for new product there. We're seeing a growing pipeline of larger ISM projects and an early demand for the public safety products that we're soon to release. I think it's too early to tell if all this will manifest itself in revenue growth for the year, but I will say we're encouraged by the trends we're seeing.

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Operator [14]

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Our next question is from [Matty Bennelong] of Pallidus Capital.

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Unidentified Analyst, [15]

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Congrats on the new position and the first time over there in the post -- for the CEO post. I just have a few question relating your thing that you're going to invest in growth and kind of this acquisition and through organics. I'll be honest with you, my main point here is looking back at the history of the company, and I'm not saying what's going to be in the future, but this is the reason it looks like pretty roughly. From perspective, new CEO (inaudible) some cash on that growth initiative through acquisition and there was (inaudible) that actually really destroyed volumes in the investor. And I guess, the market is also pretty scared about using the cash to do acquisition. On the other hand, it's not saying that don't need to use the cash just because we are afraid. I'm supportive of doing anything you need to do in order to grow, but I guess maybe you can help me or help us how you think about acquisition, like what multiple interests you? What exactly of the units of the business you want to make strength? Or it's different -- something different than what you have? And in addition to that, what's the size of the acquisition you're looking at? And if you would do tomorrow acquisition, would that be something accretive to revenue and earning as soon as like for 12 months?

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Alfred S. John, Westell Technologies, Inc. - President & CEO [16]

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Great question. Let me break it into a couple of parts. First of all, I understand that there's the history, but I'm here looking more at the future what we can and should be doing for the business. As I said earlier, I think the focus needs to be on getting each of our business units above subscale. We're going to do that through organic growth. We're also going to do that through a strategic focused acquisition. So to answer your question on the acquisition target base, we're really looking for companies that are $3 million to $10 million in revenue that we can buy at a very reasonable multiple. We're not going to overpay for acquisitions, I will promise you that. They have to be accretive day 1 in my opinion, and that's what we're looking at today. Given that there's enough of a pipeline out there that we can be particular or we can be choosy, but the 2 main criteria for me is they have to be a natural extension of one of our business units. We are not going to step outside of our core strengths and our core abilities and go into a fourth direction. So they will be part of our core business strategy, 1 of our 3 business units, and they have to provide a natural product extension that gives us the ability to grow at high single digits or low double digits in that product space. So we're going to be very picky. We do have a great pipeline. There's lot of opportunity out there. So that's how we think about it. We want to look at growth markets. We want to make sure they're accretive day 1, and we believe that there's a decent pipeline out there of those types of opportunities that we'd be able to choose the ones that fit neatly into those criteria.

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Unidentified Analyst, [17]

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Okay, fair enough. But when you're saying, of course, not paying too much for a company, I mean what multiple are we talking about? How do you think in multiple perspective when do acquisition?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [18]

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In multiple perspective, I think 1 to 1.1x revenue or I'm targeting 2 to 4x EBITDA.

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Unidentified Analyst, [19]

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Okay, that's fair enough. You guys spoke about backlog last quarter and that it were supposed to hit earnings. I were, I guess, expecting a little bit earnings to go more aggressively up. But can you update on the backlog for us here?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [20]

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This backlog is we're predominantly a book and ship business with our current base business. The backlog did increase outside of the normal bounds at the end of the previous quarter, and so that was probably a -- more of a onetime thing. The backlog is something that stays at around the $6 million, $7 million range in total with -- of continuous orders and continuous shipments going out. We're predominantly a book and ship business other than some services, which are more of recurring revenue.

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Unidentified Analyst, [21]

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Okay. And the last one, there was a question last call about the 2 class for voting shares that the -- one of the colleagues asked what's the board's answer for that if they decide not to (inaudible) the one. Can you update on that? Give us some answers.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [22]

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You, so -- I'm sorry, Matty, can you repeat the question, I didn't quite hear it.

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Unidentified Analyst, [23]

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There are 2 classes of voting rights in the shares of the company, and so the question last quarter about if you guys -- (inaudible) shares of one of them and just joined them to be one class of shares. So I'm asking if there is any update on that?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [24]

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Yes, there is. So we had -- one of our investors on the call last quarter, you're right, he asked about that. He had a couple of questions. And our Chairman agreed with his point of view and agreed that we would put it on the agenda for our next Board of Directors meeting, which we had in June, and we did that. And the outcome of that is, is that it's a -- those shares are held by a trust and it's a decision that the trust makes and that's respected. And then to further address, I think you had another question around coming on the call and talking about why it continues to exist. But the one thing I can say there is, I can point to our filings, and in particular, there was one a year ago. It was a special -- it wasn't the FY 17, the normal proxy statement, but it was a special meeting proxy statement. And in there is an outline of those reasons. So I will leave it at that.

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Operator [25]

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Our next question is from Marc Silk of Silk Investment Advisors.

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Marc Silk, [26]

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Actually, that was me who asked the question about the dual shares last quarter, but it looks like you've covered it. But just up for public information, I did get a lot of calls from other shareholders who basically thanked me for bringing that up. So again, if they can come up a reasonable answer, I would -- I think everyone would like that. So anyways, let's move on. So first of all, Steve, so can you give me some color on the fiber access solutions, meaning like I'm sure it was in development before you got there. Is it something that you saw? And it was like in the tip saying that we need to kind of get more aggressive in this area. I would just like maybe more color on that. I think it's moving in the right direction and also with 5G deployment some are slower, some are, bigger, depending on what company. So I think if you give us an overview because we can kind of like figure out what kind of opportunities you have, that would be helpful.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [27]

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Sure. So as you know, George Wakileh joined a week before I did, and George really was brought on to focus in this area. It's also an area that I've got pretty significant experience in from my service provider background in cable and telcom. So we're really focusing on the edge of the network where densification is taking place. We're focusing in-building where we want to simplify the deployment capability, de-skill the labor force for our customers and help them to be -- simplify the implementation. We want to -- we're looking at miniaturizing and shrinking the footprint as densification takes place to provide higher density in smaller footprints. And then really also focusing on all the activity around connectivity to all the wireless antennas that are going to be needed to support 5G and CBRS and the other emerging technologies where it's going to require high bandwidth all the way to the antenna. So that's really where the focus is. It comes partially from my background, but certainly George brings the expertise there.

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Marc Silk, [28]

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So to kind of -- I know when you answered Mike's question about revenue opportunities. So it sounds like you said in this calendar year you're looking to generate some revenues from this. Do you see like a point where you could really see this growth take off whether it is calendar year 2019, 2020? I'm just kind of looking at your view of...

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Alfred S. John, Westell Technologies, Inc. - President & CEO [29]

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Yes. I think it's a fair question, Marc. I do see this taking off. We're in the infancy. In 12 weeks, George has got his first products released. We've got purchase orders for those products. They aren't super significant purchase orders, but they are new purchase orders. I believe that when you're really going to see traction is our Q4 or calendar Q1, and then the calendar year of 2019, I believe, is where we'll see impact of the efforts we're putting here.

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Marc Silk, [30]

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So this next question is not being derogatory to the previous administration because I thought they were doing a good job. What -- when you came in, now what have you seen maybe that you say, "You know what, we were doing this maybe not the right way I want to change things and maybe focus more on your vision and what's going to change," because again you have an underperforming stock and maybe if you can say, "You know what, Marc, they did some of these things, which I think is probably not -- maybe a waste of time," or just maybe your input of what you've kind of seen the change in the environment?

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Alfred S. John, Westell Technologies, Inc. - President & CEO [31]

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Yes, fair question. Look, I've got a ton of respect for what Kirk did here on both of his stints. He did the necessary things to get the operating leverage that we have today, and they're giving us the opportunities now to execute a different way. I think the biggest opportunity I see is to more verticalize our sales organization and be able to -- a lot of the companies we compete against are pure play, and so they have got dedicated sales resources that are focused on a single product. One of the things I saw, and this is no slight on Kirk or any of the other leaders, is that we got a very broad product mix and sometimes I think it's difficult to get the right amount of attention in the sales organization for each of those products. So we're kind of looking at that sales organizations, as Tom mentioned. You may see a slight increase in OpEx. It's really going to be focused on increasing our ability to get to our customer earlier on in their project planning, have more meaningful time spent in front of our -- out in the field where decisions are being made. So verticalizing our sales organization, getting more individual focus on specific product growth where I can look someone in the eye in my organization -- sales organization and know who owns a specific number. I think that's going to be the biggest thing that's going to cause significant change in the way we sell and how successful we are at continue to grow market share. The second thing is just adjacencies. I think because my experience in the cable industry, I understand how to sell into that industry. It's a different sales process than we're typically used to in the telco space, and I believe that we'll see some increased ability there. So I think those are the primary differences.

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Marc Silk, [32]

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That's a great answer. All right. So as you look at these different areas that you're focused on, is it maybe one area that gets you more excited than the others? I know you're not going to put -- I just -- I'm just trying to see if maybe there's something that can surprise us down the line. I'm a long-term investor, so not the next quarter or 2, but over the next few years, is there something that could maybe explode in the upside?

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Alfred S. John, Westell Technologies, Inc. - President & CEO [33]

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Yes. I'll go back to my comments. In the script, it is -- I think the 2 areas that I'm excited about, in-building wireless and the edge work that we're doing in the fiber space kind of play together in my opinion. I see huge demand for better coverage, more secure coverage, more private coverage in enterprise and especially in certain verticals, specifically hospitality, large manufacturing, maritime transportation. So that's what excites me, and I think that's where we -- if we make the right choices on technology, which I believe we will, and we're bring -- and I'm using my extensive industry contacts to vet out these ideas before we bring into the market. But I think that's a place where we can make a significant impact. Certainly, there's going to be competition. The big players, ARRIS with Ruckus acquisition, Corning with the SpiderCloud acquisition, they obviously see that as well. And we have to find our right niche within that -- within that space, but I believe we will find that niche and that niche could be very significant.

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Marc Silk, [34]

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Great. So let's say you're stuck in the mid-250s, 65% of your market cap is in cash. Are you guys going to continue with the buy back? Because I think with the lack of investors right now, they're retiring stock down at these levels, it's not the worst idea.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [35]

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Yes. Marc, this is Tom. We have a 10b5-1 plan in place. We expect to continue to have that in place and continued buyback.

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Marc Silk, [36]

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And my last question, for either Tom or Steve. Just so you know, I don't know if they've mentioned this, so in the last few conference calls before you got here, they kind of had a -- like a red line. They said that they would look to see their cash not go below $20 million. So obviously with the acquisitions and the buy back, is that still something that they have out there? Or obviously if there's something that can really increase growth? I just want to know what the board has said to you about that $20 million number that they publicly have stated in the past conference calls.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [37]

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Yes. From my perspective, there is no specific line, and we're going to look to put that cash to work. As I said, we have very specific investment criteria for M&A. And if we can find deals that fit that criteria, I think putting that cash to work is the right thing to do. And we'll look to be creative in the way we finance these deals as well, so we get the most out of that, the cash that we use.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [38]

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Yes. And Marc, just to add a little more to that. So that's where -- sometimes there is a balancing act in terms of spending the cash on the buybacks versus on growth. I mean, at the end of the day, it's got to be spent smartly and optimized for shareholder value. And so some of these things we're looking at will be able to fund. The balance sheet is strong. And then we'll also weigh that down the road in terms of continued buyback or not. We are going to do what we believe is the best use of the cash to drive value.

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Marc Silk, [39]

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No, you've done a great job with that over the last few years. My last comment, what really goes far is the management team and the Board of Directors. If they are confident in what you're doing is going the right path and they think that Westell is good value, I'd like to see some insider step-up and buy some shares. It just shows the most confidence because people sell for different reasons, but they buy because they want to make money. And good -- so good luck, Stephen.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [40]

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I appreciate. Thanks, Marc.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [41]

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Thank you, Marc.

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Operator [42]

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Our next question is from [Bill Bryant].

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Unidentified Shareholder, [43]

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So I'm a private investor holding shares for several years. Much of what I was curious about on M&A has been discussed already, but a few specifics. So you talked a lot about using cash. What other financing instruments do you envision using -- I realize that depends on the deals, but I was talking about debt or issuing new shares going against your buy back, or perhaps give me some insight into the financing model.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [44]

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Sure, Bill. I think all options are on the table. We're initiating conversations with the debt markets to just make sure that we have that as an option. I will say that I'm somewhat reluctant to use what I think is an undervalued currency in our stock to purchase right now. I think it shouldn't be off the table, but when I look at it right now, I do believe it's undervalued based upon where I -- the vision I can see for the company. So I think we have to be careful of how much of that we use as a currency in deals.

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Unidentified Shareholder, [45]

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Okay. I -- it makes sense to me. And then the follow-up on -- so it sounds like you would go more to debt markets where you would be reluctant to use cash. What are you finding in your discussion with debt markets? When they look at your financial picture, what kind of rates do you think you're going to be able to get?

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Alfred S. John, Westell Technologies, Inc. - President & CEO [46]

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I think it's a little early to tell. I do think we're seeing interest. I think people like the story, they like the space we're in, the history of the company, the fact that we are producing cash, that we have operating leverage, I think were all interesting things. I think it will depend on the deal that we want to bring them into and what the payback characteristics are in the ROI on the capital we're investing. But I think it's too early to tell what rates we'll see. And then obviously whatever rate we see is going to help us determine whether we want to use our existing cash or we want to use debt.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [47]

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Yes, I agree. So too early, but we have the ability there. Some of the M&A opportunities we're looking at right now are not self-funded through our balance sheet.

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Unidentified Shareholder, [48]

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Okay. And then the last question about this. So you talked about targets of 1 to 1.1x revenue or 2 to 4x EBITDA. I'm not specifically familiar with the deal valuation in your space, but those seem like unrealistic criteria to me. And certainly when you consider your competitors' strength and their growth for [acquisition side]. I'm trying to understand a scenario in which you would find a target that attractive in those ranges where someone won't see them as being more valuable than what you're willing to pay. Can you comment on that?

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Alfred S. John, Westell Technologies, Inc. - President & CEO [49]

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Yes, I can. Certainly, I think those are aggressive targets. But I will say that I'm looking -- actively looking at several deals as we speak, and more than half of them would fall into that criteria. I think to get those types of deals, we've got to be very aggressive to go out and find the right types of companies that are looking to expand through a merger or an acquisition to continue to grow their product. There are certainly some others that have new kind of leapfrog type technologies that are expecting higher valuation. So I think they'll be a balance, and we will look at those. But I think initially, if we want to do accretive acquisitions, the day 1 add to our revenues and into our bottom line, I believe we can find -- there are definitely a handful out there that we'll focus on that will meet that criteria.

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Unidentified Shareholder, [50]

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Sorry, I don't want...

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [51]

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Limit ourself. Yes, I'm sorry, go.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [52]

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Yes...

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Unidentified Shareholder, [53]

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We say that -- it seems likely that those would not be public concerns, those would be the private concerns or...

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [54]

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That's correct.

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Operator [55]

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Our next question is from Steve Busch of Everglades Resources.

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Steve Busch, [56]

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So just -- most of my questions have been answered actually, I just had a couple of quick housekeeping things. Did you say you bought back 250,000 shares this quarter -- past quarter? Or is that cumulative so far?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [57]

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That's cumulative so far, Steve.

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Steve Busch, [58]

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But nothing this quarter?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [59]

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Now this quarter we bought back $250,000 of repurchases.

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Steve Busch, [60]

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Oh, $250,000, I got it.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [61]

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We want to get to the -- yes, in the quarter, we spent $251,000 on share buybacks in 1Q '19.

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Steve Busch, [62]

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Okay, all right. Got you. That makes sense. I'd like to see that. We kind of have this tremendous leverage to the bottom line, tag line for a couple quarters now, what -- and which I like. What level of revenue do you really need to drop GAAP earnings to the bottom line at this point? Where is that tremendous leverage? What's kind of the number that we have to start hitting?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [63]

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Well, the first thing I would say and actually point you to a couple of quarters in the middle of last fiscal year when we were GAAP breakeven or better. I believe it was the second and third fiscal quarters of FY '18. So that will give you a good proxy for that. We have to be obviously a little above where we are at this quarter. Now we get into the 14 range, 15 range. We are at the current level of adjustments between GAAP and non-GAAP, which are, on a regular basis, are amortization of previous acquisition intangibles and stock-based comp. We'd have to get slightly above where we are today. I will tell you this, and we've had this in the past as a goal and it continues to be a target for us is that 10% or better non-GAAP operating profit margin is where we want to be, and need to be, to be successful. And that would be, "we did 8.6 this quarter." So it doesn't take a whole hell of a lot more revenue to get 10 given the current model. We will add some expense, so it will drive up a bit, 14, 14.5, but it's 15 where -- we're really above that range non-GAAP. And when you're at that range non-GAAP, you're more than breakeven on a GAAP basis given today's adjustments.

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Steve Busch, [64]

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Perfect, that's very helpful. I don't know if you comment, on the last quarter call, we talked about a pushout in the UDIT business from a customer. Is that shift still kind of going on? You're expecting maybe some of the prior to come back in this quarter, which seems to maybe have happened? What's the dynamics there now?

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Alfred S. John, Westell Technologies, Inc. - President & CEO [65]

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Yes, we are seeing some recovery this quarter and expect to see continued recovery probably the next 2 quarters, but there certainly is still is a transition to CRAN transition to small cell, but I think there are -- we're seeing some new venues being spec. We're seeing success in some venues that have kind of been in the sales cycle for a while. So I think you'll see some steady performance there, a little above what we probably expected.

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [66]

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And Steve, I would also add that given that the product spend is successful for a number of years, there's a pretty large embedded base of UDIT in large venues and those venues are in upgrade and you have to expand and add more equipment to keep up with the bandwidth needs at the large venue. So even though the future new deployments are not going to be what they used to be, there are still be some, as Steve mentioned. There's also this capacity add business that will continue to give us a stream of revenue for the product for UDIT in particular.

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Steve Busch, [67]

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Great, okay. In one of the callers was talking about a double -- organic revenue growth, and you're saying you were looking for double-digit organic revenue growth, is that correct? And can you quantify that to...

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Alfred S. John, Westell Technologies, Inc. - President & CEO [68]

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Yes. We're looking for double-digit incremental organic growth. So as -- we're looking for products that will grow at double digit that will then create, say, probably single-digit organic growth of the business units.

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Steve Busch, [69]

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Okay, that's more clear. Let's see what I got for you here. You had this press release the other day. I know, Tom, you spoke about it briefly where we release products, but in the rest of the press release, it was developing products. Can you kind of talk about where we are in those developments because they have not been really shared or are they being released this month? What's the story there?

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Thomas P. Minichiello, Westell Technologies, Inc. - Senior VP, CFO, Treasurer & Secretary [70]

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So there's a couple of different areas. So in the -- in our fiber distribution, we have released 3 new products. I just -- I'll reserve the right not to give real specifics on that just from a competitive standpoint, but we are also continuing to develop and plan to release upwards of 8 to 10 new products in that particular space within the next quarter or quarter and a half. But 3 products are released. We have purchase orders for those products, and we hope to be in production and shipping, some of that by the end of this quarter. And then on the public safety, as I mentioned, we will be releasing as soon as it gets through, UL testing, a Class A repeater to the marketplace, which we have already seen some pent-up demand for. And we will be showing that product at the [ASCO] show in Las Vegas August 5 through the 8.

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Operator [71]

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(Operator Instructions) I'm showing no further questions at this time. I will now turn the call back to Steve John for closing remarks.

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Alfred S. John, Westell Technologies, Inc. - President & CEO [72]

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Well, thank you, everyone, for joining us today. As mentioned, we have a lot to do to grow the business and drive up shareholder value, and we will continue working hard to deliver that value. Look forward to speaking with you again next call.

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Operator [73]

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Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, you may now disconnect.