Westell Technologies Reports Fiscal Fourth Quarter 2016 Results

Year-over-year revenue grew 12% to $20.9 million

AURORA, Ill.--()--Westell Technologies, Inc. (NASDAQ: WSTL), a leading provider of in-building wireless, intelligent site management, cell site optimization, and outside plant solutions, today announced results for its fiscal 2016 fourth quarter ended March 31, 2016 (4Q16). Management will host a conference call to discuss financial and business results tomorrow, Thursday, May 19, 2016 at 9:30 AM Eastern Time (details below).

Consolidated revenue for 4Q16 was $20.9 million, up 12% year-over-year and 3% on a sequential quarter basis, and consisted of $5.8 million from the In-Building Wireless (IBW) segment and $15.1 million from the Communication Solutions Group (CSG) segment. Consolidated revenue for fiscal year 2016 (FY16) grew 5% to $88.2 million. More significantly, gross margin increased year-over-year from 31.9% in FY15 to 39.1% in FY16.

“CSG delivered strong 4Q16 results, with segment revenue up 31% on both a year-over-year and sequential quarter basis, led by solid performances from our Intelligent Site Management (ISM) and Outside Plant (OSP) product areas. While IBW was affected by the integration of our Distributed Antennas System (DAS) Conditioner products into larger network elements, we anticipate future IBW growth from our new ClearLink DAS and from enhancements to our Repeater product line,” said Tom Gruenwald, Chairman, CEO, and President of Westell Technologies.

“FY16 was a year of powerful change for Westell, during which we successfully launched our multi-phase ‘fix-build-expand’ turnaround plan. Under new leadership, we gained positive momentum in transforming several key areas of the business, most notably a significant upgrade of our sales organization, a more effective supply chain, and the establishment of a CTO (Chief Technology Office) function. While we face headwinds with the decline of some of our late-lifecycle products, we are firmly focused on returning the Company to profitability through continued scrutiny of expenses and structure, and the introduction of new products,” Gruenwald said.

Total cash and short-term investments were $29.7 million at March 31, 2016, compared to $34.8 million at December 31, 2015. The use of cash increased when compared to each of the three previous quarters primarily due to a revenue pattern weighted more towards the latter part of the quarter, resulting in a higher customer receivable balance at March 31, 2016.

4Q16 Performance

  4Q16 3Q16 4Q15 4Q16 4Q16
3 months ended 3 months ended 3 months ended vs. vs.
03/31/16 12/31/15 03/31/15 3Q16 4Q15
Consolidated Revenue $20.9M $20.2M $18.6M +3% +12%
Gross Margin 37.8% 39.4% 25.1% -1.6% +12.7%
Net Income (Loss) ($5.1M) ($4.8M) ($13.0M) ($0.3M) $7.9M
Earnings (Loss) Per Share ($0.08) ($0.08) ($0.22) $— $0.14
Non-GAAP Earnings (Loss) Per Share (1) ($0.04) ($0.05) ($0.09) $0.01 $0.05

(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.

FY16 Performance

  FY16 FY15 FY16
12 months ended 12 months ended vs.
03/31/16

03/31/15

FY15
Consolidated Revenue $88.2M $84.1M +5%
Gross Margin 39.1% 31.9% +7.2%
Net Income (Loss) ($16.2M) ($58.9M) $42.7M
Earnings (Loss) Per Share ($0.27) ($0.98) $0.71
Non-GAAP Earnings (Loss) Per Share (1) ($0.14) ($0.20) $0.06

(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 4Q16 revenue performance year-over-year and on a sequential quarter basis was largely indicative of a market shifting away from stand-alone DAS conditioners, as the function served by these devices are increasingly integrated into larger network elements. IBW’s 4Q16 gross margin improvement compared to 4Q15 was primarily due to lower excess and obsolete inventory costs, and decrease compared to 3Q16 was principally a result of the change in segment revenue.

      4Q16           3Q16           4Q15           4Q16           4Q16
3 months ended 3 months ended 3 months ended vs. vs.
    03/31/16           12/31/15           03/31/15           3Q16           4Q15
IBW Segment Revenue     $5.8M           $8.7M           $7.1M           -33%           -18%
IBW Segment Gross Margin     35.6%           38.2%           23.0%           -2.6%           +12.6%
IBW Segment R&D Expense     $2.4M           $2.7M           $2.3M           ($0.3M)           $0.1M
IBW Segment Profit (Loss)     ($0.3M)           $0.6M           ($0.7M)           ($0.9M)           $0.4M
 

Communication Solutions Group (CSG) Segment

CSG’s 4Q16 year-over-year revenue growth was due to increased ISM revenue and significantly higher OSP revenue, while the same growth level on a sequential quarter basis was due to the significantly higher OSP revenue and increased sales of Tower Mounted Amplifiers. OSP achieved its highest quarterly revenue level since the June 2013 quarter, driven predominately by sales of Integrated Cabinets. CSG’s 4Q16 gross margin improvement compared to 4Q15 was primarily due to lower excess and obsolete inventory costs, and decrease compared to 3Q16 was mainly due to a less favorable mix.

      4Q16           3Q16           4Q15           4Q16           4Q16
3 months ended 3 months ended 3 months ended vs. vs.
    03/31/16           12/31/15           03/31/15           3Q16           4Q15
CSG Segment Revenue     $15.1M           $11.5M           $11.5M           +31%           +31%
CSG Segment Gross Margin     38.6%           40.3%           26.4%           -1.7%           +12.2%
CSG Segment R&D Expense     $2.3M           $2.2M           $1.9M           $0.1M           $0.4M
CSG Segment Profit (Loss)     $3.5M           $2.5M           $1.1M           $1.0M           $2.4M
 

Conference Call Information

Management will discuss financial and business results during the quarterly conference call on Thursday, May 19, 2016, at 9:30 AM Eastern Time. Investors may quickly register online in advance of the call at https://www.conferenceplus.com/westell. After registering, participants receive dial-in numbers, a passcode and a registration ID that is used to uniquely identify their presence and automatically join them into the audio conference. A participant may also register by telephone on May 19 by dialing 888-206-4073 no later than 9:15 AM Eastern Time and providing the operator confirmation number 41589143.

This news release and related information that may be discussed on the conference call, will be posted on the Investor Relations section of Westell's website: http://www.westell.com. A digital recording of the entire conference will be available for replay on Westell's website by approximately 1:00 PM Eastern Time after the call ends.

About Westell

Westell Technologies, Inc. is a leading provider of in-building wireless, intelligent site management, cell site optimization, and outside plant solutions focused on innovation and differentiation at the edge of telecommunication networks, where end users connect. The Company's comprehensive set of products and solutions enable service providers and network operators to improve network 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/A for the fiscal year ended March 31, 2015, under Item 1A - Risk Factors. The Company undertakes no obligation to publicly update these forward-looking statements to reflect current events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events, or otherwise.

Financial Tables to Follow:

 
Westell Technologies, Inc.
Condensed Consolidated Statement of Operations

(Amounts in thousands, except per share amounts)

(Unaudited)

 
Three months ended Twelve months ended

March 31,

December 31,

  March 31,

March 31,

March 31,
2016

2015

2015 2016 2015
Revenue $ 20,904 $ 20,215 $ 18,613 $ 88,203 $ 84,127
Gross profit 7,893 7,963 4,666 34,516 26,810
Gross margin 37.8 % 39.4 % 25.1 % 39.1 % 31.9 %
Operating expenses:
Research & development 4,713 4,893 4,220 19,317 17,348
Sales & marketing 4,608 3,900 3,343 15,817 12,407
General & administrative 1,747 2,627 5,547 9,836 14,678
Intangibles amortization 1,305 1,418 1,520 5,554 6,377
Restructuring 731 (1) 3,188 (2) 748 (1) 3,243 (2)
Goodwill impairment (3)         31,997  
Total operating expenses 13,104   12,838   17,818   51,272   86,050  
Operating income (loss) from continuing operations (5,211 ) (4,875 ) (13,152 ) (16,756 ) (59,240 )
Other income (expense), net 107   85   (18 ) 169   (2 )
Income (loss) before income taxes and discontinued operations (5,104 ) (4,790 ) (13,170 ) (16,587 ) (59,242 )
Income tax benefit (expense) 27   (7 ) 31   102   201  
Net income (loss) from continuing operations (5,077 ) (4,797 ) (13,139 ) (16,485 ) (59,041 )
Income (loss) from discontinued operations, net of income tax (4) 1     139   273   139  
Net income (loss) $ (5,076 ) $ (4,797 ) $ (13,000 ) $ (16,212 ) $ (58,902 )
Basic and diluted net income (loss) per share:
Basic and diluted net income (loss) from continuing operations $ (0.08 ) $ (0.08 ) $ (0.22 ) $ (0.27 ) $ (0.98 )
Basic and diluted net income (loss) from discontinued operations          
Basic and diluted net income (loss) $ (0.08 ) $ (0.08 ) $ (0.22 ) $ (0.27 ) $ (0.98 )
Weighted-average number of shares outstanding:
Basic and diluted 60,847 60,810 60,286 60,786 59,985
(1)   The Company recorded restructuring expense primarily relating to severance costs for terminated employees.
(2) The Company recorded restructuring expense relating to severance costs for terminated employees and abandonment of excess office space at its headquarters.
(3) The Company recorded a non-cash charge of $32.0 million to record an impairment of the full carrying amount of goodwill.
(4) Income from discontinued operations resulted from the expiration of indemnity periods and release of contingency reserves related to the sale of ConferencePlus.
 
Westell Technologies, Inc.
Condensed Consolidated Balance Sheets

(Amounts in thousands)

 
Assets:   March 31, 2016   March 31, 2015
(Unaudited)
Cash and cash equivalents $ 19,169 $ 14,026
Short-term investments 10,555 23,906
Accounts receivable, net 16,361 11,845
Inventories 13,498 16,205
Prepaid expenses and other current assets 1,900 3,285
Land held-for-sale 264
Total current assets 61,483 69,531
Property and equipment, net 3,977 3,603
Intangible assets, net 20,388 25,942
Other non-current assets 183 258
Total assets $ 86,031 $ 99,334
Liabilities and Stockholders’ Equity:
Accounts payable $ 7,856 $ 4,011
Accrued expenses 5,932 5,576
Accrued restructuring 1,537 1,161
Contingent consideration 311 1,184
Deferred revenue 1,601 2,415
Total current liabilities 17,237 14,347
Deferred revenue non-current 1,236 751
Net deferred income tax liability 10 46
Accrued restructuring non-current 550 1,642
Contingent consideration non-current 400
Other non-current liabilities 314 409
Total liabilities 19,347 17,595
Total stockholders’ equity 66,684 81,739
Total liabilities and stockholders’ equity $ 86,031 $ 99,334
 
Westell Technologies, Inc.
Condensed Consolidated Statement of Cash Flows

(Amounts in thousands)

 
Twelve Months Ended March 31,
Cash flows from operating activities:

2016 (Unaudited)

 

2015

Net income (loss) $ (16,212 ) $ (58,902 )
Reconciliation of net income to net cash provided by (used in) operating activities:
Depreciation and amortization 7,098 7,416
Goodwill impairment 31,997
Stock-based compensation 1,265 2,605
Restructuring 748 3,243
Deferred taxes (36 ) (127 )
Impairment loss or loss (gain) on sale of fixed assets 14 117
Exchange rate loss (gain) (38 ) 23
Changes in assets and liabilities:
Accounts receivable (4,476 ) 3,986
Inventories 2,707 8,186
Accounts payable and accrued expenses 2,192 (6,912 )
Other 1,131   (919 )
Net cash provided by (used in) operating activities (5,607 ) (9,287 )
Cash flows from investing activities:
Net purchases of short-term investments and debt securities 13,351 (8,322 )
Acquisitions, net of cash acquired (304 )
Proceeds from sale of land 264
Purchases of property and equipment (1,932 ) (2,137 )
Net cash provided by (used in) investing activities 11,683   (10,763 )
Cash flows from financing activities:
Payment of contingent consideration (808 ) (1,104 )
Purchases of treasury stock (108 ) (863 )
Proceeds from stock options exercised   257  
Net cash provided by (used in) financing activities (916 ) (1,710 )
Gain (loss) of exchange rate changes on cash (17 ) (7 )
Net increase (decrease) in cash and cash equivalents 5,143   (21,767 )
Cash and cash equivalents, beginning of period 14,026   35,793  
Cash and cash equivalents, end of period $ 19,169   $ 14,026  
 
Westell Technologies, Inc.
Segment Statement of Operations

(Amounts in thousands)

(Unaudited)

Sequential Quarter Comparison

   
Three months ended March 31, 2016 Three Months Ended December 31, 2015
IBW   CSG   Total IBW   CSG   Total
Revenue $ 5,838 $ 15,066 $ 20,904 $ 8,680 $ 11,535 $ 20,215
Cost of revenue 3,761   9,250   13,011   5,361   6,891   12,252  
Gross profit 2,077 5,816 7,893 3,319 4,644 7,963
Gross margin 35.6 % 38.6 % 37.8 % 38.2 % 40.3 % 39.4 %
Research & development 2,421   2,292   4,713   2,701   2,192   4,893  
Segment profit (loss) $ (344 ) $ 3,524   $ 3,180   $ 618   $ 2,452   $ 3,070  

Year-over-Year Quarter Comparison

   
Three months ended March 31, 2016 Three months ended March 31, 2015
IBW   CSG   Total IBW   CSG   Total
Revenue $ 5,838 $ 15,066 $ 20,904 $ 7,082 $ 11,531 $ 18,613
Cost of revenue 3,761   9,250   13,011   5,456   8,491   13,947  
Gross profit 2,077 5,816 7,893 1,626 3,040 4,666
Gross margin 35.6 % 38.6 % 37.8 % 23.0 % 26.4 % 25.1 %
Research & development 2,421   2,292   4,713   2,315   1,905   4,220  
Segment profit (loss) $ (344 ) $ 3,524   $ 3,180   $ (689 ) $ 1,135   $ 446  
 

Full Year Comparison

   
Twelve months ended March 31, 2016 Twelve months ended March 31, 2015
IBW   CSG   Total IBW   CSG   Total
Revenue $ 34,407 $ 53,796 $ 88,203 $ 37,714 $ 46,413 $ 84,127
Cost of revenue 20,463   33,224   53,687   23,999   33,318   57,317  
Gross profit 13,944 20,572 34,516 13,715 13,095 26,810
Gross margin 40.5 % 38.2 % 39.1 % 36.4 % 28.2 % 31.9 %
Research & development 11,059   8,258   19,317   8,955   8,393   17,348  
Segment profit (loss) $ 2,885   $ 12,314   $ 15,199   $ 4,760   $ 4,702   $ 9,462  
 
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,
2016 2015 2015 2016 2015
GAAP net income (loss) $ (5,076 ) $ (4,797 ) $ (13,000 ) $ (16,212 ) $ (58,902 )
Adjustments:
Inventory fair value step-up (1) 36 576
Deferred revenue adjustment (1) 63 73 64 281 386
Amortization of intangibles (2) 1,305 1,418 1,520 5,554 6,377
Restructuring, separation and transition (3) 799 4,989 1,022 5,044
Stock-based compensation (4) 291 264 977 1,265 2,605
Land impairment 108 108
Goodwill impairment (5) 31,997
(Income) loss from discontinued operations (6)   (1 )       (139 )   (273 )   (139 )
Total adjustments   2,457     1,755     7,555     7,849     46,954  
Non-GAAP net income (loss) $ (2,619 ) $ (3,042 ) $ (5,445 ) $ (8,363 ) $ (11,948 )
GAAP net income (loss) per common share:
Basic and diluted $ (0.08 ) $ (0.08 ) $ (0.22 ) $ (0.27 ) $ (0.98 )
Non-GAAP net income (loss) per common share:
Basic and diluted $ (0.04 ) $ (0.05 ) $ (0.09 ) $ (0.14 ) $ (0.20 )
Average number of common shares outstanding:
Basic and diluted 60,847 60,810 60,286 60,786 59,985
 
Three months ended Twelve months ended
March 31,

December 31,

March 31, March 31, March 31,
2016 2015 2015 2016 2015
GAAP operating expenses

$

13,104

$

 12,838

$

 17,818

$

 51,272

$

86,050

Adjustments:
Amortization of intangibles (2) (1,305 ) (1,418 ) (1,520 ) (5,554 ) (6,377 )
Restructuring, separation and transition (3) (799 ) (4,989 ) (1,022 ) (5,044 )
Stock-based compensation (4) (320 ) (251 ) (953 ) (1,270 ) (2,516 )
Land impairment (108 ) (108 )
Goodwill impairment (5)                   (31,997 )
Total adjustments   (2,424 )   (1,669 )   (7,570 )   (7,846 )   (46,042 )
Non-GAAP operating expense

$

10,680

 

$

 11,169

 

$

 10,248

 

$

 43,426

 

$

 40,008

 
   
Three months ended March 31, 2016 Three months ended March 31, 2015
Revenue   Gross Profit   Gross Margin Revenue   Gross Profit   Gross Margin
GAAP - consolidated $ 20,904 $ 7,893 37.8 %

$

 18,613

$

 4,666

25.1 %
Deferred revenue adjustment (1) 63 63 64 64
Inventory fair value step-up (1) 36
Stock-based compensation (4)       (29 )       24  
Non-GAAP - consolidated

$

20,967

 

$

 7,927

  37.8 %

$

 18,677

 

$

 4,790

  25.6 %
 
  Twelve months ended March 31, 2016   Twelve months ended March 31, 2015
Revenue   Gross Profit   Gross Margin Revenue   Gross Profit   Gross Margin
GAAP - consolidated $ 88,203 $ 34,516 39.1 %

$

 84,127

$

 26,810

31.9 %
Deferred revenue adjustment (1) 281 281 386 386
Inventory fair value step-up (1) 576
Stock-based compensation (4)       (5 )       89  
Non-GAAP - consolidated

$

 88,484

 

$

 34,792

  39.3 %

$

 84,513

 

$

 27,861

  33.0 %
 

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

(1)   On April 1, 2013 and on March 1, 2014, the Company purchased Kentrox and CSI. These acquisitions required the step-up of certain assets to fair value, which resulted in cost that will not recur once those assets have fully settled. The adjustments remove the increased costs associated with the third-party sales of inventory that was stepped-up and the step-down on acquired deferred revenue that was recognized in the periods presented.
(2) Amortization of intangibles is a non-cash expense arising from the acquisition of intangible assets.
(3) Restructuring expenses are not directly related to the ongoing performance of our fundamental business operations. This adjustment also includes severance benefits related to the departure of certain former executives.
(4) Stock-based compensation is a non-cash expense incurred in accordance with share-based compensation accounting.
(5) The Company recorded a non-cash charge of $32.0 million during fiscal 2015 to record the impairment of the full carrying value of the Company's goodwill.
(6) Income from discontinued operations resulted from the expiration of indemnity periods and release of contingency reserves related to the sale of ConferencePlus.

Contacts

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

Contacts

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