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Westell Reports Fiscal 2019 Second Quarter Results

AURORA, Ill., Oct. 31, 2018 (GLOBE NEWSWIRE) -- Westell Technologies, Inc. (WSTL), a leading provider of high-performance network infrastructure solutions, announced results for its fiscal 2019 second quarter ended September 30, 2018 (2Q19).  Management will host a conference call to discuss 2Q19 results and plans for future growth tomorrow, Thursday, November 1, 2018, at 9:30 AM Eastern Time (details below).

Revenue was $10.1 million and comprised $3.6 million from the In-Building Wireless (IBW) segment, $2.6 million from the Intelligent Site Management (ISM) segment, and $3.8 million from the Communication Network Solutions (CNS) segment.  Cash and short-term investments grew to $28.5 million at September 30, 2018, up from $25.8 million at June 30, 2018, driven by improved working capital, partly offset by an operating loss and share repurchases.

“We grew cash significantly and continued to exceed our gross margin target of 40% or greater.  While 2Q19 sequential IBW and CNS segment revenues were up slightly, overall results were affected by lower ISM revenue from one of our larger customers,” said Stephen John, President and Chief Executive Officer.  “We continue to aggressively pursue growth opportunities through organic initiatives, partnerships, and acquisitions.  In 2Q19, we received initial customer orders and recognized our first revenue for the fiber access solutions we began developing in April of this year.  In addition, our recently announced small cell product agreement positions us to expand in the market for private LTE networks using the emerging OnGo spectrum.”

       
  2Q19
3 months ended
9/30/18
1Q19
3 months ended
6/30/18
+ increase /
- decrease
Revenue $10.1M $13.0M -$2.9M
Gross Margin 41.5% 45.5% -4.0%
Operating Margin -17.4% -1.2% -16.2%
Net Income (Loss) ($1.7M) ($0.0M) -$1.7M
Earnings (Loss) Per Share ($0.11) ($0.00) -$0.11
Non-GAAP Operating Margin (1) -6.2% +8.6% -14.8%
Non-GAAP Net Income (Loss) (1) ($0.5M) $1.2M -$1.7M
Non-GAAP Earnings (Loss) Per Share (1) ($0.03) $0.08 -$0.11
Non-GAAP Adjusted EBITDA (1) ($0.5M) $1.3M -$1.8M
Ending Cash and ST Investments $28.5M $25.8M +$2.7M
(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.
 

In-Building Wireless (IBW) Segment

IBW’s revenue was up slightly in 2Q19 when compared to 1Q19, driven primarily by higher sales of DAS conditioners and passive system components, partly offset by lower repeater revenue.  IBW’s segment profit decrease was due primarily to the increased R&D expense associated with the OnGo small cell development.

       
($ in thousands) 2Q19
3 months ended
9/30/18
1Q19
3 months ended
/30/18
+ increase /
- decrease
IBW Segment Revenue $3,646 $3,557 +$89
IBW Segment Gross Margin 46.4% 46.7% -0.3%
IBW Segment R&D Expense $867 $522 +$345
IBW Segment Profit $825 $1,140 -$315
       

Intelligent Site Management (ISM) Segment

ISM’s revenue decrease was due primarily to lower product revenue as one major domestic customer spent significantly less on remote monitoring than in previous quarters, partly offset by increased support services revenue.  ISM’s segment profit decrease was due to the lower revenue.

       
($ in thousands) 2Q19
3 months ended
9/30/18
1Q19
3 months ended
6/30/18
+ increase /
- decrease
ISM Segment Revenue $2,646 $5,744 -$3,098
ISM Segment Gross Margin 53.7% 51.3% +2.4%
ISM Segment R&D Expense $558 $569 -$11
ISM Segment Profit $864 $2,379 -$1,515
       

Communication Network Solutions (CNS) Segment

CNS’s revenue increase was driven primarily by higher sales of integrated cabinets.  CNS’s segment profit decrease was due primarily to a lower gross margin due to the revenue mix and slightly higher R&D expense related to product development activities for the fiber access solutions.

       
($ in thousands) 2Q19
3 months ended
9/30/18
1Q19
3 months ended
6/30/18
+ increase /
- decrease
CNS Segment Revenue $3,814 $3,736 +$78
CNS Segment Gross Margin 28.3% 35.5% -7.2%
CNS Segment R&D Expense $418 $341 +$77
CNS Segment Profit $661 $984 -$323
       

Conference Call Information
Management will discuss financial and business results and plans for future growth during the quarterly conference call on Thursday, November 1, 2018, at 9:30 AM Eastern Time.  Investors may quickly register online in advance of the call at 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 November 1, 2018, by calling (877) 875-0056 no later than 8:15 AM Central Time (9:15 AM Eastern Time) and providing the operator confirmation number 47737770.

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://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 Technologies
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 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, and the imposition of new, or changes in existing duties and tariffs), 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.

           
Westell Technologies, Inc.
Condensed Consolidated Statement of Operations
(Amounts in thousands, except per share amounts)
(Unaudited)
           
    Three months ended   Six months ended  
    September 30,   June 30,   September 30,   September 30,   September 30,  
    2018   2018   2017   2018   2017  
Revenue   $ 10,106     $ 13,037     $ 17,232     $ 23,143     $ 33,806    
Cost of revenue   5,913     7,102     9,957     13,015     19,764    
Gross profit   4,193     5,935     7,275     10,128     14,042    
Gross margin   41.5 %   45.5 %   42.2 %   43.8 %   41.5 %  
Operating expenses:                      
R&D   1,843     1,432     2,205     3,275     4,481    
Sales and marketing   1,876     2,137     1,992     4,013     4,328    
General and administrative   1,400     1,534     1,809     2,934     3,520    
Intangible amortization   832     990     1,048     1,822     2,095    
Restructuring           165   (1)     165   (1)
Total operating expenses   5,951     6,093     7,219     12,044     14,589    
Operating profit (loss)   (1,758 )   (158 )   56     (1,916 )   (547 )  
Other income, net   165     119     677   (2) 284     720   (2)
Income (loss) before income taxes   (1,593 )   (39 )   733     (1,632 )   173    
Income tax benefit (expense)   (10 )       (13 )   (10 )   (25 )  
Net income (loss) from continuing operations   (1,603 )   (39 )   720     (1,642 )   148    
Income (loss) from discontinued operations (3)   (138 )           (138 )      
Net income (loss)   $ (1,741 )   $ (39 )   $ 720     $ (1,780 )   $ 148    
                       
Basic net income (loss) per share:                      
Basic net income (loss)   $ (0.11 )   $     $ 0.05     $ (0.11 )   $ 0.01    
Diluted net income (loss)   $ (0.11 )   $     $ 0.05     $ (0.11 )   $ 0.01    
Weighted-average number of common shares outstanding:                      
Basic   15,583     15,632     15,461     15,602     15,471    
Diluted   15,583     15,632     15,672     15,602     15,638    

(1) During the quarter ended September 30, 2017, the Company recorded restructuring expense related to severance costs for terminated employees.
(2) 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 the cumulative translation adjustment.
(3)  During the quarter ended September 30, 2018, 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.

         
Westell Technologies, Inc.
Condensed Consolidated Balance Sheet
(Amounts in thousands)
         
    September 30, 2018
(Unaudited)
  March 31, 2018
Assets        
Cash and cash equivalents   $ 28,471     $ 24,963  
Short-term investments       2,779  
Accounts receivable, net   6,957     8,872  
Inventories   10,370     9,222  
Prepaid expenses and other current assets   1,131     816  
Total current assets   46,929     46,652  
Land, property and equipment, net   1,463     1,601  
Intangible assets, net   9,613     11,435  
Tax receivable, non-current   697     697  
Other non-current assets   73     74  
Total assets   $ 58,775     $ 60,459  
Liabilities and Stockholders’ Equity        
Accounts payable   $ 2,822     $ 1,903  
Accrued expenses   3,235     3,328  
Accrued restructuring       63  
Deferred revenue   1,095     1,790  
Total current liabilities   7,152     7,084  
Deferred revenue non-current   557     846  
Other non-current liabilities   241     234  
Total liabilities   7,950     8,164  
Total stockholders’ equity   50,825     52,295  
Total liabilities and stockholders’ equity   $ 58,775     $ 60,459  
                 


           
Westell Technologies, Inc.
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
           
    Three months
ended
September 30,
  Six months
 ended
September 30,
 
    2018   2018   2017  
Cash flows from operating activities:      
Net income (loss)   $ (1,741 )   $ (1,780 )   $ 148    
Reconciliation of net income (loss) to net cash used in operating activities:              
Depreciation and amortization   971     2,113     2,526    
Stock-based compensation   295     586     672    
Loss on sale of fixed assets   1     1     8    
Restructuring           165    
Gain on disposal of foreign operations           (608 ) (1)
Exchange rate loss (gain)   (9 )   1     (6 )  
Changes in assets and liabilities:              
Accounts receivable   3,619     1,914     1,025    
Inventory   (643 )   (1,148 )   2,528    
Accounts payable and accrued expenses   746     770     (2,306 )  
Deferred revenue   (463 )   (655 ) (2) (1,477 )  
Prepaid expenses and other current assets   152     (315 )   375    
Other assets   1     1     73    
Net cash provided by (used in) operating activities   2,929     1,488     3,123    
Cash flows from investing activities:              
Net maturity (purchase) of short-term investments   1,346     2,779     (5,011 )  
Purchases of property and equipment, net   (103 )   (153 )   (254 )  
Net cash provided by (used in) investing activities   1,243     2,626     (5,265 )  
Cash flows from financing activities:              
Purchase of treasury stock   (200 )   (605 )   (456 )  
Net cash provided by (used in) financing activities   (200 )   (605 )   (456 )  
Gain (loss) of exchange rate changes on cash   2     (1 )   20    
Net increase (decrease) in cash and cash equivalents   3,974     3,508     (2,578 )  
Cash and cash equivalents, beginning of period   24,497   (3) 24,963   (3) 21,778    
Cash and cash equivalents, end of period   $ 28,471     $ 28,471     $ 19,200   (3)

(1)  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 the cumulative translation adjustment.
(2)  Includes the cumulative effect adjustment of the ASC 606 adoption.
(3) As of June 30, 2018, March 31, 2018, and September 30, 2017, the Company had $1.3 million, $2.8 million and $5.0 million, respectively, of short-term investments in addition to cash and cash equivalents.

         
Westell Technologies, Inc.
Segment Statement of Operations
(Amounts in thousands)
(Unaudited)
         
Sequential Quarter Comparison
         
    Three months ended September 30, 2018   Three months ended June 30, 2018
    IBW   ISM   CNS   Total   IBW   ISM   CNS   Total
Total revenue   $ 3,646     $ 2,646     $ 3,814     $ 10,106     $ 3,557     $ 5,744     $ 3,736     $ 13,037  
Gross profit   1,692     1,422     1,079     4,193     1,662     2,948     1,325     5,935  
Gross margin   46.4 %   53.7 %   28.3 %   41.5 %   46.7 %   51.3 %   35.5 %   45.5 %
R&D expenses   867     558     418     1,843     522     569     341     1,432  
Segment profit   $ 825     $ 864     $ 661     $ 2,350     $ 1,140     $ 2,379     $ 984     $ 4,503  
                                                                 


         
Year-over-Year Quarter Comparison
         
    Three months ended September 30, 2018   Three months ended September 30, 2017
    IBW   ISM   CNS   Total   IBW   ISM   CNS   Total
Total revenue   $ 3,646     $ 2,646     $ 3,814     $ 10,106     $ 7,919     $ 4,730     $ 4,583     $ 17,232  
Gross profit   1,692     1,422     1,079     4,193     3,650     2,219     1,406     7,275  
Gross margin   46.4 %   53.7 %   28.3 %   41.5 %   46.1 %   46.9 %   30.7 %   42.2 %
R&D expenses   867     558     418     1,843     1,443     523     239     2,205  
Segment profit   $ 825     $ 864     $ 661     $ 2,350     $ 2,207     $ 1,696     $ 1,167     $ 5,070  
                                                                 


         
Westell Technologies, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
(Amounts in thousands, except per share amounts)
(Unaudited)
         
    Three months ended   Six months ended
    September 30,   June 30,   September 30,   September 30,   September 30,
    2018   2018   2017   2018   2017
GAAP consolidated operating expenses   $ 5,951     $ 6,093     $ 7,219     $ 12,044     $ 14,589  
Adjustments:                    
Stock-based compensation (1)   (284 )   (279 )   (345 )   (563 )   (650 )
Amortization of intangibles (2)   (832 )   (990 )   (1,048 )   (1,822 )   (2,095 )
Restructuring, separation, and transition (3)           (165 )       (165 )
Total adjustments   (1,116 )   (1,269 )   (1,558 )   (2,385 )   (2,910 )
Non-GAAP consolidated operating expenses   $ 4,835     $ 4,824     $ 5,661     $ 9,659     $ 11,679  
                                         


         
    Three months ended   Six months ended
    September 30,   June 30,   September 30,   September 30,   September 30,
    2018   2018   2017   2018   2017
GAAP consolidated net income (loss)   $ (1,741 )   $ (39 )   $ 720     $ (1,780 )   $ 148  
Less:                    
Income tax benefit (expense)   (10 )       (13 )   (10 )   (25 )
Other income, net   165     119     677     284     720  
Discontinued operations (4)   (138 )   $     $     (138 )   $  
GAAP consolidated operating profit (loss)   $ (1,758 )   $ (158 )   $ 56     $ (1,916 )   $ (547 )
Adjustments:                    
Stock-based compensation (1)   295     291     342     586     672  
Amortization of intangibles (2)   832     990     1,048     1,822     2,095  
Restructuring, separation, and transition (3)           165         165  
Total adjustments   1,127     1,281     1,555     2,408     2,932  
Non-GAAP consolidated operating profit (loss)   $ (631 )   $ 1,123     $ 1,611     $ 492     $ 2,385  
Depreciation   139     152     201     291     431  
Non-GAAP consolidated Adjusted EBITDA (5)   $ (492 )   $ 1,275     $ 1,812     $ 783     $ 2,816  
                                         


         
    Three months ended   Six months ended
    September 30,   June 30,   September 30,   September 30,   September 30,
    2018   2018   2017   2018   2017
GAAP consolidated net income (loss)   $ (1,741 )   $ (39 )   $ 720     $ (1,780 )   $ 148  
Adjustments:                    
Stock-based compensation (1)   295     291     342     586     672  
Amortization of intangibles (2)   832     990     1,048     1,822     2,095  
Restructuring, separation, and 
transition (3)
          165         165  
Discontinued operations (4)   138             138      
Foreign currency translation adjustment (6)           (608 )       (608 )
Total adjustments   1,265     1,281     947     2,546     2,324  
Non-GAAP consolidated net income (loss)   $ (476 )   $ 1,242     $ 1,667     $ 766     $ 2,472  
GAAP consolidated net income (loss) per common share:                    
Diluted   $ (0.11 )   $     $ 0.05     $ (0.11 )   $ 0.01  
Non-GAAP consolidated net income (loss) per common share:                    
Diluted   $ (0.03 )   $ 0.08     $ 0.11     $ 0.05     $ 0.16  
Average number of common shares outstanding:                    
Diluted   15,583     15,748     15,672     15,713     15,638  

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)   Restructuring, separation, and transition expenses are not directly related to the ongoing performance of our fundamental business operations.
(4)  During the quarter ended September 30, 2018, 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.
(5)  EBITDA is a non-GAAP measure that represents Earnings Before Interest, Taxes, Depreciation, and Amortization.  The Company presents Adjusted EBITDA.
(6)  Non-recurring foreign currency translation gain related to the wind-up of the NoranTel legal entity during the quarter ended September 30, 2017.

For additional information, contact:

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