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Westell Technologies Reports Second Quarter Revenue of $30 million

  Westell Technologies Reports Second Quarter Revenue of $30 million

     Strong sales of new products drive revenue growth and profitability

Business Wire

AURORA, Ill. -- November 6, 2013

Westell Technologies, Inc. (NASDAQ: WSTL), a global leader of intelligent site
and outside plant solutions, today announced results for its fiscal 2014
second quarter ended September30, 2013.

Consolidated revenue was $30.0 million, driven by record quarterly sales of
intelligent site management solutions, tower mounted amplifiers (TMAs), and
distributed antenna systems (DAS) interface panels.

On a GAAP basis, the Company recorded net income in the quarter ended
September30, 2013, of $1.3 million or $0.02 per share, compared to a net loss
of $2.2 million or $0.04 per share in the year-ago quarter. On a non-GAAP
basis, the Company recorded net income of $4.0 million or $0.07 per share,
compared to a non-GAAP net loss of $1.6 million or $0.03 per share in the
year-ago quarter. Please refer to the schedule at the end of this release for
a complete GAAP to non-GAAP reconciliation, and other information related to
non-GAAP measures.

Cash and short-term investments were $81.5 million at September30, 2013,
compared to $82.9 million at June 30, 2013. Revenue growth in the quarter
drove increased working capital requirements.

“We are pleased with our revenue and profitability performance in the fiscal
second quarter,” said Chairman and CEO Rick Gilbert. “Our success during the
first half of the fiscal year continues to validate our strategic focus on
intelligent site management and wireless products. We believe we are
well-positioned to achieve our financial goals for this fiscal year.”

Kentrox Segment

Kentrox segment revenue was $16.1 million in the quarter ended September30,
2013, up 34% from $12.0 million in the fiscal 2014 first quarter ended June
30, 2013. The sequential revenue growth was driven primarily by increased
demand for large deployments with domestic customers. Gross profit was $8.1
million and gross margin was 50.4% compared to $5.2 million and 43.5% in the
prior quarter. The margin improvement was due to the higher revenues and a
more favorable product mix. Kentrox R&D expenses were $0.9 million, compared
to $1.0 million last quarter. As a result, Kentrox segment profit was $7.3
million, compared to $4.2 million in the first quarter.

Westell Segment

Westell segment revenue was $13.9 million in the quarter ended September30,
2013, up 33% from $10.5 million in the prior quarter, driven by increased
wireless product revenue, primarily TMAs and DAS panels. Gross profit was $4.3
million and gross margin was 31.1%, compared to $3.6 million and 34.0% in the
last quarter. While gross profit improved due to the revenue increase, the
margin decreased due to higher amounts recorded this quarter for excess and
obsolete inventory. Westell R&D expenses were $1.8 million, compared to $1.7
million last quarter. As a result, Westell segment profit was $2.6 million,
compared to $1.8 million in the first quarter.

Conference Call Information

Management will address financial and business results during its second
quarter conference call on Thursday, November 7, 2013, at 9:30 AM Eastern
Time. Participants may register for the call at
http://www.conferenceplus.com/westell. After doing so, they will receive a
dial-in number, a passcode, and a personal identification number (PIN) that
automatically joins them to the audio conference. Those who do not wish to
register may participate  in the call by dialing 888-206-4073 no later than
9:15 AM Eastern Time and using confirmation number 35883407. International
participants may dial 847-413-9014.

This news release and related information that may be discussed on the
conference call will be posted on the Investor News section of Westell's
website: http://www.westell.com. An archive of the entire call will be
available on the site via Digital Audio Replay by approximately 1:00 PM
Eastern Time after the call ends. The replay of the conference also may be
accessed by dialing 888-843-7419 or 630-652-3042 and entering 7777976.

About Westell Technologies

Westell Technologies, Inc., headquartered in Aurora, Illinois, is a global
leader of intelligent site and outside plant solutions focused on the high
value/growth edge and access networks. The comprehensive solutions Westell
provides enable service providers, industrial customers, tower operators, home
network users, and other network operators to reduce operating costs while
improving network performance. 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, 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 March31, 2013,
under Item1A - 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 September     Six Months Ended September
                   30,                              30,
                   2013            2012            2013           2012
Revenue            $  29,960        $  9,854        $  52,416       $ 19,272
Gross profit       12,423           3,449           21,199          6,222
Gross margin       41.5       %     35.0       %    40.4       %    32.3     %
Operating
expenses:
Sales &            3,886            1,831           7,304           3,706
marketing
Research &         2,619            1,480           5,318           2,997
development
General &          3,226            2,123           6,798           4,702
administrative
Restructuring      169              57              235             149
Intangibles        1,229           210            2,851          418      
amortization
Total operating    11,129          5,701          22,506         11,972   
expenses
Operating income   1,294            (2,252     )    (1,307     )    (5,750   )
(loss)
Other income       98              7              (32        )    91       
(expense)
Income (loss)
before income
taxes and          1,392            (2,245     )    (1,339     )    (5,659   )
discontinued
operations
Income tax
benefit            (68        )     677            (87        )    1,924    
(expense)
Net income
(loss) from        1,324           (1,568     )    (1,426     )    (3,735   )
continuing
operations
Income (loss)
from
discontinued       4               (607       )    (10        )    (180     )
operations, net
of income tax
^(1)
Net income         $  1,328        $  (2,175  )    $  (1,436  )    $ (3,915 )
(loss)
Basic earnings
per share:
Net income
(loss) from        $  0.02          $  (0.03   )    $  (0.02   )    $ (0.06  )
continuing
operations
Net income
(loss) from        —               (0.01      )    —              —        
discontinued
operations
Net income         $  0.02         $  (0.04   )    $  (0.02   )    $ (0.06  )
(loss)
Diluted earnings
per share:
Net income
(loss) from        $  0.02          $  (0.03   )    $  (0.02   )    $ (0.06  )
continuing
operations
Net income
(loss) from        —               (0.01      )    —              —        
discontinued
operations
Net income         $  0.02         $  (0.04   )    $  (0.02   )    $ (0.06  )
(loss)
Average number
of common shares
outstanding:
Basic              58,681           60,420          58,601          61,465
Diluted            59,740           60,420          58,601          61,465
                                                                             

(1)  In the first quarter of fiscal year 2014, the Company discontinued the
      operations of its Customer Networking Solutions (CNS) segment.
      
      
      

Westell Technologies, Inc.

Condensed Consolidated Balance Sheet

(Amounts in thousands)

(Unaudited)
                                                             
                                           September 30, 2013   March 31, 2013
Assets:
Cash and cash equivalents                  $    68,751          $    88,233
Restricted cash                            460                  2,500
Short-term investments                     12,320               24,349
Accounts receivable, net                   21,369               6,689
Inventories                                17,670               12,223
Prepaid expenses and other current         2,065                1,804
assets
Assets available-for-sale                  1,044               —
Total current assets                       123,679              135,798
Property and equipment, net                1,252                1,081
Goodwill                                   8,025                —
Intangibles, net                           18,184               5,063
Other non-current assets                   478                 495
Total assets                               $    151,618        $    142,437
Liabilities and Stockholders’ Equity:
Accounts payable                           $    10,502          $    4,126
Accrued expenses                           6,649                3,953
Deferred revenue                           1,116               —
Total current liabilities                  18,267               8,079
Deferred revenue long-term                 669                  —
Contingent consideration long-term         1,212                2,333
Other long-term liabilities                1,117               948
Total liabilities                          21,265               11,360
Total stockholders’ equity                 130,353             131,077
Total liabilities and stockholders’        $    151,618        $    142,437
equity
                                                                     
                                                                     
                                                                     

Westell Technologies, Inc.

Condensed Consolidated Statement of Cash Flows

(Amounts in thousands)

(Unaudited)
                                              
                                                Six months ended September 30,
                                                2013            2012
Cash flows from operating activities:
Net income (loss)                               $  (1,436  )     $  (3,915  )
Reconciliation of net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization                   3,148            666
Stock-based compensation                        740              731
Restructuring                                   235              149
Deferred taxes                                  —                (1,993     )
Other                                           64               (8         )
Changes in assets and liabilities:
Accounts receivable                             (10,455    )     (234       )
Inventory                                       (402       )     243
Accounts payable and accrued expenses           4,497            (436       )
Deferred revenue                                (1,179     )     (77        )
Other                                           461             (993       )
Net cash provided by (used in) operating        (4,327     )     (5,867     )
activities
Cash flows from investing activities:
Net purchases of short-term investments and     12,029           (8,677     )
debt securities
Payment for business acquisitions, net          (28,945    )     (2,524     )
Purchases of property and equipment, net        (234       )     (156       )
Changes in restricted cash                      2,040           2,613      
Net cash provided by (used in) investing        (15,110    )     (8,744     )
activities
Cash flows from financing activities:
Purchase of treasury stock                      (297       )     (9,826     )
Proceeds from stock options exercised           269             29         
Net cash provided by (used in) financing        (28        )     (9,797     )
activities
Effect of exchange rate changes on cash         (17        )     3          
Net increase (decrease) in cash                 (19,482    )     (24,405    )
Cash and cash equivalents, beginning of         88,233          120,832    
period
Cash and cash equivalents, end of period        $  68,751       $  96,427  
                                                                            
                                                                            
                                                                            

Westell Technologies, Inc.

Segment Statement of Operations^1

(Amounts in thousands)

(Unaudited)
                                       
                                         Three Months Ended September 30, 2013
                                         Kentrox      Westell     Total
Revenue                                  $  16,103     $ 13,857     $ 29,960
Cost of goods sold                       7,995         9,542     17,537   
Gross profit                             8,108          4,315      12,423
Gross margin                             50.4      %    31.1   %   41.5     %
Operating expenses:
Research & development                   858           1,761     2,619    
Segment profit (loss)                    $  7,250     $ 2,554     9,804
Sales & marketing                                                   3,886
General & administrative                                            3,226
Restructuring                                                       169
Intangible amortization                                             1,229    
Operating profit (loss)                                             1,294
Other income (loss)                                                 98
Income tax benefit (expense)                                        (68      )
Net income (loss) from continuing                                   $ 1,324  
operations
                                                                             
                                                                             

                                        Three Months Ended September 30, 2012
                                         Westell             Total
Revenue                                  $    9,854           $   9,854
Cost of goods sold                       6,405               6,405        
Gross profit                             3,449                3,449
Gross margin                             35.0         %       35.0         %
Operating expenses:
Research & development                   1,480               1,480        
Segment profit (loss)                    $    1,969          1,969
Sales & marketing                                             1,831
General & administrative                                      2,123
Restructuring                                                 57
Intangible amortization                                       210          
Operating profit (loss)                                       (2,252       )
Other income (loss)                                           7
Income tax benefit (expense)                                  677          
Net income (loss) from continuing                             $   (1,568   )
operations

      In connection with the Kentrox acquisition, the Company completed the
      integration of the marketing, sales, customer service, and
      administrative functions into single organizations that now operate
      across the whole Company. In as much as these organizations are no
(1)  longer solely dedicated to any one segment and are managed separately at
      the corporate level, the Company has excluded these expenses from
      segment profit. Segment profit, therefore is defined as gross profit
      less research and development expenses. Segment profit excluded sales
      and marketing expenses, general and administrative expenses, the
      amortization of acquired intangible assets, and restructuring.
      
      
      

Westell Technologies, Inc.

Segment Statement of Operations^1

(Amounts in thousands)

(Unaudited)
                                        
                                         Six Months Ended September 30, 2013
                                         Kentrox     Westell     Total
Revenue                                   $ 28,107     $ 24,309     $ 52,416
Cost of goods sold                        14,780     16,437    31,217   
Gross profit                               13,327      7,872      21,199
Gross margin                               47.4   %    32.4   %   40.4     %
Operating expenses:
Research & development                     1,845      3,473     5,318    
Segment profit (loss)                     $ 11,482    $ 4,399     15,881
Sales & marketing                                                   7,304
General & administrative                                            6,798
Restructuring                                                       235
Intangible amortization                                             2,851    
Operating profit (loss)                                             (1,307   )
Other income (loss)                                                 (32      )
Income tax benefit (expense)                                        (87      )
Net income (loss) from continuing                                   $ (1,426 )
operations
                                                                             
                                                                             

                                          Six Months Ended September 30, 2012
                                           Westell             Total
Revenue                                    $   19,272           $   19,272
Cost of goods sold                         13,050              13,050      
Gross profit                               6,222                6,222
Gross margin                               32.3         %       32.3        %
Operating expenses:
Research & development                     2,997               2,997       
Segment profit (loss)                      $   3,225           3,225
Sales & marketing                                               3,706
General & administrative                                        4,702
Restructuring                                                   149
Intangible amortization                                         418         
Operating profit (loss)                                         (5,750      )
Other income (loss)                                             91
Income tax benefit (expense)                                    1,924       
Net income (loss) from continuing                               $   (3,735  )
operations

      In connection with the Kentrox acquisition, the Company completed the
      integration of the marketing, sales, customer service, and
      administrative functions into single organizations that now operate
      across the whole Company. In as much as these organizations are no
(1)  longer solely dedicated to any one segment and are managed separately at
      the corporate level, the Company has excluded these expenses from
      segment profit. Segment profit, therefore is defined as gross profit
      less research and development expenses. Segment profit excluded sales
      and marketing expenses, general and administrative expenses, the
      amortization of acquired intangible assets, and restructuring.
      
      
      

Westell Technologies, Inc.

Reconciliation of GAAP to non-GAAP Financial Measures

(Amounts in thousands, except per share amounts)

(Unaudited)
                                               
                  Three Months Ended September    Six Months Ended September
                  30,                             30,
                  2013           2012            2013            2012
GAAP net income   $  1,328        $  (2,175  )    $  (1,436  )     $  (3,915 )
(loss)
Adjustments:
Inventory fair
value step-up     479             —               1,245            —
^(1)
Deferred
revenue           448             —               1,095            —
adjustment ^(1)
Amortization of
intangibles ^     1,229           210             2,851            418
(2)
Income tax        —               (1,031     )    —                (2,015    )
benefit ^(3)
Restructuring     169             57              235              149
^(4)
Stock based
compensation      389             343             740              718
^(5)
(Income) loss
from
discontinued      (4        )     989            10              288       
operations,
pre-tax ^(6)
Total             2,710          568            6,176           (442      )
adjustments
Non-GAAP net      $  4,038       $  (1,607  )    $  4,740        $  (4,357 )
income (loss)
GAAP net income
(loss) per
common share:
Basic             $  0.02         $  (0.04   )    $  (0.02   )     $  (0.06  )
Diluted           $  0.02         $  (0.04   )    $  (0.02   )     $  (0.06  )
Non-GAAP net
income (loss)
per common
share:
Basic             $  0.07         $  (0.03   )    $  0.08          $  (0.07  )
Diluted           $  0.07         $  (0.03   )    $  0.08          $  (0.07  )
Average number
of common
shares
outstanding:
Basic             58,681          60,420          58,601           61,465
Diluted           59,740          60,420          59,360           61,465
                                                                             
                                                                             

                 Three Months Ended September   Six Months Ended September
                  30,                             30,
                  2013            2012           2013            2012
GAAP operating    $  11,129        $  5,701       $  22,506        $  11,972
expense
Adjustments:
Amortization of
intangibles ^     (1,229     )     (210      )    (2,851     )     (418      )
(2)
Restructuring     (169       )     (57       )    (235       )     (149      )
^(4)
Stock based
compensation      (380       )     (344      )    (724       )     (701      )
^(5)
Total             (1,778     )     (611      )   (3,810     )     (1,268    )
adjustments
Non-GAAP
operating         $  9,351        $  5,090      $  18,696       $  10,704 
expense
                                                                             

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
GAAPmeasure. 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 these non-GAAP
results provide meaningful supplemental information to investors and indicate
the Company's core performance and that they facilitate comparison of results
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.

      On April 1, 2013, the Company purchased Kentrox which 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
(1)  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 three and six months ended September
      30, 2013.
(2)   Amortization of intangibles is a non-cash expense arising from the
      acquisition of intangible assets.
      The Company is in a full valuation allowance in fiscal year 2014. The
(3)   adjustment removes the tax benefits recorded in fiscal year 2013 to
      reflect the tax result had the Company been in a full valuation
      allowance in fiscal year 2013.
(4)   Restructuring expenses are not directly related to the ongoing
      performance of our fundamental business operations.
(5)   Stock-based compensation is a non-cash expense incurred in accordance
      with share-based compensation accounting.
      In the first quarter of fiscal year 2014, the Company discontinued the
(6)   operations of the CNS segment. Historical results of operations of the
      CNS division are presented as discontinued operations.

Contact:

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