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Westell Reports Fiscal 2019 Fourth Quarter Results

AURORA, Ill., May 29, 2019 (GLOBE NEWSWIRE) -- Westell Technologies, Inc. (WSTL), a leading provider of high-performance network infrastructure solutions, today announced results for its fiscal 2019 fourth quarter ended March 31, 2019 (4Q19) and its fiscal year ended March 31, 2019 (FY19).  Management will host a conference call to discuss financial and business results tomorrow, Thursday, May 30, 2019 at 9:30 AM Eastern Time (details below).

“4Q19 revenue was largely affected by the performance of our IBW segment.  While sales of commercial repeaters and DAS conditioners decreased as expected, delays in expanding our product portfolio for a larger addressable public safety market further contributed to the IBW decline.  Seasonally lower sales of remote units affected ISM revenue after a strong performance in 3Q19.  CNS revenue increased sequentially, led by power distribution and network connectivity products, and growing traction for our new suite of fiber access solutions,” said Stephen John, Westell’s President and CEO.

“Moving forward, our IBW business remains committed to the public safety market and the development of our OnGo small cell for private LTE networks.  For our CNS and ISM businesses, we are focused on densification initiatives for 5G and IoT where our fiber access and remote monitoring solutions address the critical requirements of more capacity, deployment simplification, and intelligence at the edge of communication networks,” added John.

  4Q19
3 months ended
03/31/19
3Q19
3 months ended
12/31/18
+ increase /
- decrease
Revenue $9.7M $10.7M -$1.0M
Gross Margin 37.6% 42.8% -5.2%
Net Income (Loss) (1) ($8.0M) ($1.6M) -$6.4M
Earnings (Loss) Per Share  (1) ($0.52) ($0.10) -$0.42
Non-GAAP Net Income (Loss) (2) ($2.1M) ($0.4M) -$1.7M
Non-GAAP Earnings (Loss) Per Share (2) ($0.13) ($0.03) -$0.10
Ending Cash $25.5M $27.1M -$1.6M

(1)  Includes a $4.7M non-recurring accounting charge in 4Q19 for the impairment of IBW intangible assets.
(2)  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.

In-Building Wireless (IBW) Segment

IBW’s revenue decrease was primarily due to new public safety product introduction delays and lower sales of commercial repeaters and DAS conditioners, partly offset by increased sales of existing public safety repeaters and passive RF system components.  IBW’s gross margin decrease was primarily due to higher excess and obsolete inventory costs.

($ in thousands) 4Q19
3 months ended
03/31/19
3Q19
3 months ended
12/31/18
+ increase /
- decrease
IBW Segment Revenue $2,477 $2,794 ($317)
IBW Segment Gross Margin 31.4% 38.3% -6.8%
IBW Segment R&D Expense $684 $682 $2
IBW Segment Profit $95 $387 ($292)

Intelligent Site Management (ISM) Segment

ISM’s revenue decrease was due to lower sales of remote units and Optima software licenses, partly offset by increased support services revenue.  ISM’s gross margin decrease was due to a less favorable mix and higher excess and obsolete inventory costs.

($ in thousands) 4Q19
3 months ended
03/31/19
3Q19
3 months ended
12/31/18
+ increase /
- decrease
ISM Segment Revenue $3,757 $5,116 ($1,359)
ISM Segment Gross Margin 47.1% 56.7% -9.6%
ISM Segment R&D Expense $693 $570 $123
ISM Segment Profit $1,078 $2,329 ($1,251)

Communication Network Solutions (CNS) Segment

CNS’s revenue increase was driven by higher sales of power distribution and network connectivity products, as well as growing traction for our new of fiber access solutions; partly offset by lower sales on integrated cabinets.  CNS’s gross margin increase was driven by higher revenue and a more favorable mix.

($ in thousands) 4Q19
3 months ended
03/31/19
3Q19
3 months ended
12/31/18
+ increase /
- decrease
CNS Segment Revenue $3,471 $2,812 $659
CNS Segment Gross Margin 31.6% 22.1% +9.5%
CNS Segment R&D Expense $402 $484 ($82)
CNS Segment Profit $694 $138 $556
       

Conference Call Information

Management will discuss financial and business results during the quarterly conference call on Thursday, May 30, 2019, 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 May 30 by dialing 888-206-4065 no later than 9:15 AM Eastern Time and providing the operator confirmation number 48609103.  

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: ir.westell.com.  A digital recording of the entire conference will be available for replay on Westell's website by approximately 12:00 PM Eastern Time following the conclusion of the conference.

About Westell

Westell is a leading provider of high-performance network infrastructure solutions focused on innovation and differentiation at the edge of communication networks where end users connect.  The Company's portfolio of products and solutions enable service providers and network operators to improve performance and reduce operating expenses.  With millions of products successfully deployed worldwide, Westell is a trusted partner for transforming networks into high-quality reliable systems. For more information, please visit www.westell.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained herein that are not historical facts or that contain the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “plan,” “should,” or derivatives thereof and other words of similar meaning are forward-looking statements that involve risks and uncertainties.  Actual results may differ materially from those expressed in or implied by such forward-looking statements.  Factors that could cause actual results to differ materially include, but are not limited to, product demand and market acceptance risks, customer spending patterns, need for financing and capital, economic weakness in the United States (“U.S.”) economy and telecommunications market, the effect of international economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), the impact of competitive products or technologies, competitive pricing pressures, customer product selection decisions, product cost increases, component supply shortages, new product development, excess and obsolete inventory, commercialization and technological delays or difficulties (including delays or difficulties in developing, producing, testing and selling new products and technologies), the ability to successfully consolidate and rationalize operations, the ability to successfully identify, acquire and integrate acquisitions, the effect of the Company's accounting policies, retention of key personnel and other risks more fully described in the Company's SEC filings, including the Form 10-K for the fiscal year ended March 31, 2018, 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)
 
    Three months ended   Twelve months ended  
    March 31,
2019
(Unaudited)
  December 31,
2018
(Unaudited)
  March 31,
2018
(Unaudited)
  March 31,
2019
(Unaudited)
  March 31,
2018
(Audited)
 
Revenue   $ 9,705     $ 10,722     $ 11,096     $ 43,570     $ 58,577    
Cost of revenue   6,059     6,132     6,047     25,206     33,410    
Gross profit   3,646     4,590     5,049     18,364     25,167    
Gross margin   37.6 %   42.8 %   45.5 %   42.1 %   43.0 %  
Operating expenses:                      
Research & development   1,779     1,736     1,352     6,790     7,375    
Sales & marketing   2,330     1,999     2,012     8,342     8,290    
General & administrative   2,027     1,738     1,580     6,699     6,602    
Intangibles amortization   783     830     1,047     3,435     4,189    
Restructuring                   165   (1)
Long-lived assets impairment   4,722   (2)         4,722   (2)    
Total operating expenses   11,641     6,303     5,991     29,988     26,621    
Operating income (loss)   (7,995 )   (1,713 )   (942 )   (11,624 )   (1,454 )  
Other income (expense), net   184     158     89     626     888   (3)
Income (loss) before income taxes   (7,811 )   (1,555 )   (853 )   (10,998 )   (566 )  
Income tax benefit (expense)   (28 )   (1 )   (63 )   (39 )   597   (4)
Net income (loss) from continuing operating   (7,839 )   (1,556 )   (916 )   (11,037 )   31    
Income from discontinued operations   (207 )           (345 )      
Net income (loss)   $ (8,046 )   $ (1,556 )   $ (916 )   $ (11,382 )   $ 31    
                       
Net income (loss) per share:                      
Basic net income (loss)   $ (0.52 )   $ (0.10 )   $ (0.06 )   $ (0.73 )   $    
Diluted net income (loss)   $ (0.52 )   $ (0.10 )   $ (0.06 )   $ (0.73 )   $    
                       
Weighted-average number of shares outstanding:                      
Basic   15,342     15,524     15,541     15,517     15,497    
Diluted   15,342     15,524     15,541     15,517     15,707    
                                 

(1) 2Q18 restructuring expense related to severance costs for terminated employees.

(2) 4Q19 Non-recurring impairment related to intangible assets associated with the IBW reporting unit.

(3) During the quarter ended September 30, 2017, the Company dissolved the NoranTel legal entity which triggered a one-time $0.6 million foreign currency gain with the reversal of a cumulative translation adjustment.

(4) During the quarter ended December 31, 2017, the Company had an income tax benefit of $697K from the release of the tax valuation allowance associated with previously generated alternative minimum tax (AMT) credits due to the enactment of the Tax Cuts and Jobs Act of 2017.

 
 
Westell Technologies, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
 
Assets:   March 31, 2019
(Unaudited)
  March 31, 2018
(Audited)
Cash and cash equivalents   $ 25,457   $ 24,963
Short-term investments       2,779
Accounts receivable, net   6,865   8,872
Inventories   9,801   9,222
Prepaid expenses and other current assets   1,706   816
Total current assets   43,829   46,652
Property and equipment, net   1,298   1,601
Intangible assets, net   3,278   11,435
Other non-current assets   492   771
Total assets   $ 48,897   $ 60,459
Liabilities and Stockholders’ Equity:        
Accounts payable   $ 2,313   $ 1,903
Accrued expenses   3,567   3,280
Accrued restructuring       63
Deferred revenue   1,217   1,790
Total current liabilities   7,097    7,036
Deferred revenue non-current   444    846
Other non-current liabilities   176    282
Total liabilities   7,717   8,164
Total stockholders’ equity   41,180   52,295
Total liabilities and stockholders’ equity   $ 48,897   $ 60,459
             
             


Westell Technologies, Inc.
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands)
 
    Three months
ended March 31,
  Twelve months ended March 31,
Cash flows from operating activities:   2019
 (Unaudited)
  2019
(Unaudited)
  2018
(Audited)
Net income (loss)   $ (8,046 )   $ (11,382 )   $ 31  
Reconciliation of net income to net cash provided by (used in) operating activities:            
Depreciation and amortization   934     4,026     4,957  
Intangible assets impairment   4,722     4,722      
Stock-based compensation   282     1,171     1,271  
Restructuring           165  
Gain on disposal of foreign operations           (608 )
Deferred taxes           (697 )
Loss (gain) on sale of fixed assets   1     2     22  
Exchange rate loss (gain)   (1 )   2     2  
Changes in assets and liabilities:            
Accounts receivable   115     2,007     3,200  
Inventories   362     (579 )   3,289  
Accounts payable and accrued expenses   34     528     (4,541 )
Deferred revenue   468     (646 )   (825 )
Prepaid expenses and other current assets   (537 )   (890 )   593  
Other asset   268     279     86  
Net cash provided by (used in) operating activities   (1,398 )   (760 )   6,945  
Cash flows from investing activities:            
Net purchases of short-term investments and debt securities       2,779     (2,779 )
Proceeds from sale of assets           2  
Purchases of property and equipment   (17 )   (290 )   (408 )
Net cash provided by (used in) investing activities   (17 )   2,489     (3,185 )
Cash flows from financing activities:            
Purchases of treasury stock   (195 )   (1,233 )   (574 )
Net cash provided by (used in) financing activities   (195 )   (1,233 )   (574 )
Gain (loss) of exchange rate changes on cash   2     (2 )   (1 )
Net increase (decrease) in cash and cash equivalents   (1,608 )   494     3,185  
Cash and cash equivalents, beginning of period   27,065     24,963     21,778  
Cash and cash equivalents, end of period   $ 25,457     $ 25,457     $ 24,963  
                         
                         


Westell Technologies, Inc.
Segment Statement of Operations
(Amounts in thousands)
(Unaudited)
 
Sequential Quarter Comparison
 
    Three months ended March 31, 2019   Three months Ended December 31, 2018
    IBW   ISM   CNS   Total   IBW   ISM   CNS   Total
Revenue   $ 2,477     $ 3,757     $ 3,471     $ 9,705     $ 2,794     $ 5,116     $ 2,812     $ 10,722  
Gross profit   779     1,771     1,096     3,646     1,069     2,899     622     4,590  
Gross margin   31.4 %   47.1 %   31.6 %   37.6 %   38.3 %   56.7 %   22.1 %   42.8 %
R&D expense   684     693     402     1,779     682     570     484     1,736  
Segment profit   $ 95     $ 1,078     $ 694     $ 1,867     $ 387     $ 2,329     $ 138     $ 2,854  


Year-over-Year Quarter Comparison
 
    Three months ended March 31, 2019   Three months ended March 31, 2018
    IBW   ISM   CNS   Total   IBW   ISM   CNS   Total
Revenue   $ 2,477     $ 3,757     $ 3,471     $ 9,705     $ 3,167     $ 4,688     $ 3,241     $ 11,096  
Gross profit   779     1,771     1,096     3,646     1,520     2,454     1,075     5,049  
Gross margin   31.4 %   47.1 %   31.6 %   37.6 %   48.0 %   52.3 %   33.2 %   45.5 %
R&D expense   684     693     402     1,779     485     629     238     1,352  
Segment profit   $ 95     $ 1,078     $ 694     $ 1,867     $ 1,035     $ 1,825     $ 837     $ 3,697  


Full-Year Comparison
    Twelve months ended March 31, 2019   Twelve months ended March 31, 2018
    IBW   ISM   CNS   Total   IBW   ISM   CNS   Total
Revenue   $ 12,474     $ 17,263     $ 13,833     $ 43,570     $ 23,265     $ 19,350     $ 15,962     $ 58,577  
Gross profit   5,202     9,040     4,122     18,364     10,653     9,959     4,555     25,167  
Gross margin   41.7 %   52.4 %   29.8 %   42.1 %   45.8 %   51.5 %   28.5 %   43.0 %
R&D expense   2,755     2,390     1,645     6,790     4,141     2,264     970     7,375  
Segment profit   $ 2,447     $ 6,650     $ 2,477     $ 11,574     $ 6,512     $ 7,695     $ 3,585     $ 17,792  


 
 
Westell Technologies, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
(Amounts in thousands, except per share amounts)
(Unaudited)
 
    Three months ended   Twelve months ended
    March 31,   December 31,   March 31,   March 31,   March 31,
    2019   2018   2018   2019   2018
GAAP consolidated operating expenses   $ 11,641     $ 6,303     $ 5,991     $ 29,988     $ 26,621  
Adjustments:                    
Stock-based compensation (1)   (270 )   (291 )   (286 )   (1,124 )   (1,241 )
Amortization of intangibles (2)   (783 )   (830 )   (1,047 )   (3,435 )   (4,189 )
Intangible assets impairment(3)   (4,722 )           (4,722 )    
Restructuring, separation, and transition (4)                   (165 )
Total adjustments   (5,775 )   (1,121 )   (1,333 )   (9,281 )   (5,595 )
Non-GAAP consolidated operating expenses   $ 5,866     $ 5,182     $ 4,658     $ 20,707     $ 21,026  
                                         


    Three months ended   Twelve months ended
    March 31,   December 31,   March 31,   March 31,   March 31,
    2019   2018   2018   2019   2018
GAAP consolidated net income (loss)   $ (8,046 )   $ (1,556 )   $ (916 )   $ (11,382 )   $ 31  
Less:                    
Income tax benefit (expense)   (28 )   (1 )   (63 )   (39 )   597  
Other income (expense), net   184     158     89     626     888  
Discontinued operations (5)   (207 )           (345 )    
GAAP consolidated operating profit (loss)   $ (7,995 )   $ (1,713 )   $ (942 )   $ (11,624 )   $ (1,454 )
Adjustments:                    
Stock-based compensation (1)   282     303     283     1,171     1,271  
Amortization of intangibles (2)   783     830     1,047     3,435     4,189  
Intangible assets impairment(3)   4,722             4,722      
Restructuring, separation, and transition (4)                   165  
Total adjustments   5,787     1,133     1,330     9,328     5,625  
Non-GAAP consolidated operating profit (loss)   $ (2,208 )   $ (580 )   $ 388     $ (2,296 )   $ 4,171  
Depreciation   151     149     163     591     768  
Non-GAAP consolidated Adjusted EBITDA (6)   $ (2,057 )   $ (431 )   $ 551     $ (1,705 )   $ 4,939  
                                         


    Three months ended   Twelve months ended
    March 31,   December 31,   March 31,   March 31,   March 31,
    2019   2018   2018   2019   2018
GAAP consolidated net income (loss)   $ (8,046 )   $ (1,556 )   $ (916 )   $ (11,382 )   $ 31  
Adjustments:                    
Stock-based compensation (1)   282     303     283     1,171     1,271  
Amortization of intangibles (2)   783     830     1,047     3,435     4,189  
Intangible assets impairment(3)   4,722             4,722      
Restructuring, separation, and transition (4)                   165  
Discontinued operations (5)   207             345      
Foreign currency translation adjustment (7)                   (608 )
Income taxes (8)                   (697 )
Total adjustments   5,994     1,133     1,330     9,673     4,320  
Non-GAAP consolidated net income (loss)   $ (2,052 )   $ (423 )   $ 414     $ (1,709 )   $ 4,351  
GAAP consolidated net income (loss) per common share:                    
Diluted   $ (0.52 )   $ (0.10 )   $ (0.06 )   $ (0.73 )   $  
Non-GAAP consolidated net income (loss) per common share:                    
Diluted   $ (0.13 )   $ (0.03 )   $ 0.03     $ (0.11 )   $ 0.28  
Average number of common shares outstanding:                    
Diluted   15,342     15,524     15,794     15,517     15,707  
                               

The Company conforms to U.S. Generally Accepted Accounting Principles (GAAP) in the preparation of its financial statements.  The schedules above reconcile the Company's non-GAAP financial measures to the most directly comparable GAAP measure.  The adjustments share one or more of the following characteristics: they are unusual and the Company does not expect them to recur in the ordinary course of its business; they do not involve the expenditure of cash; they are unrelated to the ongoing operation of the business in the ordinary course; or their magnitude and timing is largely outside of the Company's control.  Management believes that the non-GAAP financial information provides meaningful supplemental information to investors.  Management also believes the non-GAAP financial information reflects the Company's core ongoing operating performance and facilitates comparisons across reporting periods.  The Company uses these non-GAAP measures when evaluating its financial results.  Non-GAAP measures should not be viewed as a substitute for the Company's GAAP results.

Footnotes:

(1) Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting standards.
(2) Amortization of intangibles is a non-cash expense arising from previously acquired intangible assets.
(3) 4Q19 Non-recurring impairment related to intangible assets associated with the IBW reporting unit.
(4) Restructuring expenses are not directly related to the ongoing performance of our fundamental business operations, including costs relating to abandonment of excess office space at our headquarters and in New Hampshire, and severance costs for terminated employees.  This adjustment also includes severance benefits related to the departure of certain former executives.
(5) During FY2019, the Company recorded indemnification expense related to probable loss contingencies associated with a major customer contract related to a business which was previously sold and therefore is presented as discontinued operations
(6) EBITDA is a non-GAAP measure that represents Earnings Before Interest, Taxes, Depreciation, and Amortization.  The Company presents Adjusted EBITDA.
(7) Non-recurring foreign currency translation gain related to the wind-up of the NoranTel legal entity during the quarter ended September 30, 2017.
(8) Adjustment removes one-time tax effect of changes in valuation allowance reserves associated with previously generated alternative minimum tax (AMT) credits due to the enactment of the Tax Cuts and Jobs Act of 2017.

For additional information, contact:

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