Westell Technologies Reports Fourth Quarter and Annual Results

  Westell Technologies Reports Fourth Quarter and Annual Results

Revenue was $24.4 million for the fourth quarter and $102 million for the full
                                     year

Business Wire

AURORA, Ill. -- May 21, 2014

Westell Technologies, Inc. (NASDAQ: WSTL), a global leader of intelligent site
management, in-building wireless, cell site optimization, and outside plant
solutions, today announced results for its fiscal fourth quarter and full year
ended March31, 2014.

Consolidated revenue for the fourth quarter was $24.4 million, led by revenue
of $17.4 million for the Westell segment, including record quarterly sales of
tower mounted amplifiers (TMAs) and distributed antenna systems (DAS)
interface panels. Consolidated revenue for the full year was $102.1 million,
comprised of $52.2 million for the Westell segment, $46.2 million for the
Kentrox segment, and $3.7 million for the Cellular Specialties, Inc. (CSI)
segment, which was acquired on March 1, 2014.

Cash and short-term investments were $51.4 million at March31, 2014, compared
to $86.8 million at December 31, 2013. During the fourth quarter, the Company
used $37.2 million of cash to acquire CSI. For the fourth quarter and full
year 2014, the Company generated cash from operations of $0.9 million and $1.6
million, respectively.

“Fiscal 2014 was a great year for Westell Technologies. We met or exceeded our
stated goals including achieving $102 million in annual revenue, 41%
consolidated gross margin, positive operating cash flow, and significant
organic and inorganic growth in the wireless market,” said Rick Gilbert,
Chairman and CEO of Westell Technologies. “Our performance in fiscal 2014, the
full integration of Kentrox into Westell, and our recent acquisition of CSI,
provides us with a solid foundation for fiscal 2015 and an innovative
portfolio of solutions for our customers at the wireless network edge.”

On a GAAP basis, the Company recorded net income in the quarter ended
March31, 2014 of $4.9 million or $0.08 per share, compared to a net loss of
$38.2 million or $0.66 per share in the year-ago quarter. For the year ended
March 31, 2014, the Company recorded net income of $5.4 million or $0.09 per
share, compared to a net loss of $44.0 million or $0.73 per share in the prior
year. The fiscal 2014 fourth quarter and full year included non-cash
acquisition-related tax accounting benefits of $9.1 million. The prior year
comparative periods included non-cash tax and goodwill impairment charges
totaling $36.9 million.

On a non-GAAP basis, the Company recorded a net loss in the quarter ended
March 31, 2014 of $1.3 million or $0.02 per share, compared to a net loss of
$0.1 million or $0.00 per share in the year-ago quarter. For the year ended
March 31, 2014, the Company recorded non-GAAP net income of $7.6 million or
$0.13 per share, compared to a net loss of $3.2 million or $0.05 per share in
the prior year. The primary items excluded from the Company’s non-GAAP results
were related to acquisitions, stock-based compensation, and taxes. For a
complete GAAP to non-GAAP reconciliation and other information related to
non-GAAP measures, please refer to the schedule at the end of this release.

Westell Segment

For the fourth quarter ended March 31, 2014, Westell segment revenue was a
record $17.4 million, up 65% from $10.5 million in the third quarter. The
sequential increase was driven by continued strong demand for the new wireless
product lines in this segment as TMAs and DAS panels each achieved record high
revenues this quarter. Gross profit was $5.8 million and gross margin was
33.2%, compared to $3.4 million and 32.6% in the prior quarter. Gross profit
and gross margin increased due to the higher revenue, partly offset by higher
excess and obsolete inventory costs. Westell R&D expenses were $1.8 million,
compared to $1.6 million last quarter. As a result, Westell segment profit was
$3.9 million, compared to $1.8 million in the third quarter.

For the full year ended March 31, 2014, Westell segment revenue was $52.2
million, up 35% from $38.8 million in the prior year, driven by the growth of
the TMA and DAS panel product lines. Gross profit was $17.1 million and gross
margin was 32.7% compared to $13.3 million and 34.3% in the prior year. Gross
profit increased due to the higher revenue, while gross margin was down due
primarily to higher excess and obsolete inventory costs. Westell R&D expenses
were $6.9 million, compared to $5.9 million last year. As a result, Westell
segment profit was $10.1 million, compared to $7.4 million in fiscal 2013.

Kentrox Segment

For the fourth quarter ended March 31, 2014, Kentrox segment revenue was $3.4
million, down 77% from $14.7 million in the third quarter. The expected
sequential decrease was due to the completion of major projects in the prior
quarter. Gross profit was $1.4 million and gross margin was 41.4%, compared to
$8.8 million and 59.8% in the prior quarter (gross margin this quarter was
52.3% excluding acquisition-related adjustments). Gross profit and gross
margin decreased due primarily to the lower revenue. Kentrox R&D expenses were
$1.0 million, compared to $0.9 million last quarter. As a result, Kentrox
segment profit was $0.4 million, compared to $7.9 million in the third
quarter.

For the full year ended March 31, 2014, Kentrox segment revenue was $46.2
million (Kentrox was acquired on April 1, 2013). Gross profit was $23.5
million and gross margin was 50.9%. Kentrox R&D expenses were $3.8 million. As
a result, Kentrox segment profit was $19.7 million.

CSI Segment

For the month ended March 31, 2014, CSI segment revenue was $3.7 million.
Gross profit was $1.4 million and gross margin was 37.1% (51.9% excluding an
adjustment to revalue certain inventories at market prices as required under
acquisition accounting). R&D expenses were $0.6 million. As a result, segment
profit was $0.7 million.

Conference Call Information

Management will discuss financial and business results during the quarterly
conference call on Thursday, May 22, 2014, at 9:30 AM Eastern Time. Investors
may quickly register online in advance of the call at
http://www.conferenceplus.com/westell. After registering, participants receive
a dial-in number, passcode and personal identification number (PIN) to
automatically place them into the audio conference. Those not wishing to
register may participate  by dialing +1 (888) 206-4065 no later than 9:15 AM
Eastern Time, and using confirmation number 37185935. International
participants may dial +1 (630) 827-5974.

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 conference 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 +1 (888) 843-7419 or +1 (630) 652-3042 and entering 9663
271#.

About Westell

Westell Technologies, Inc., headquartered in Aurora, Illinois, is a global
leader of intelligent site management, in-building wireless, cell site
optimization, and outside plant solutions focused on wireless innovation at
your network’s edge. The comprehensive solutions Westell provides enable
service providers, tower operators, and other network operators to reduce
operating costs and improve 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 March         Twelve Months Ended March
                   31,                              31,
                   2014            2013             2014             2013
Revenue            $ 24,421        $ 10,663         $ 102,073        $ 38,808
Gross profit       8,524           4,013            41,958           13,325
Gross margin       34.9     %      37.6      %      41.1      %      34.3      %
Operating
expenses:
Sales &            3,851           1,924            14,663           7,492
marketing
Research &         3,494           1,556            11,339           5,928
development
General &          3,827           2,473            14,027           9,310
administrative
Intangibles        1,320           235              4,908            887
amortization
Restructuring      62              —                335              149
Goodwill           —              2,884           —               2,884     
impairment ^(1)
Total operating    12,554         9,072           45,272          26,650    
expenses
Operating income   (4,030   )      (5,059    )      (3,314    )      (13,325   )
(loss)
Other income       7              41              (56       )      175       
(expense), net
Income (loss)
before income
taxes and          (4,023   )      (5,018    )      (3,370    )      (13,150   )
discontinued
operations
Income tax
benefit            8,907     ^(2) (32,611   ) ^(3) 8,782      ^(2) (29,392   ) ^(3)
(expense)
Net income
(loss) from        4,884          (37,629   )      5,412           (42,542   )
continuing
operations
Loss from
discontinued
operations, net    (6       )      (529      )      (45       )      (1,496    )
of income tax
^(3)
Net income         $ 4,878        $ (38,158 )      $ 5,367         $ (44,038 )
(loss)
Basic net income
(loss) per
share:
Basic net income
(loss) from        $ 0.08          $ (0.65   )      $ 0.09           $ (0.71   )
continuing
operations
Basic net income
(loss) from        —              (0.01     )      —               (0.02     )
discontinued
operations
Basic net income   $ 0.08         $ (0.66   )      $ 0.09          $ (0.73   )
(loss)
Diluted net
income (loss)
per share:
Diluted net
income (loss)      $ 0.08          $ (0.65   )      $ 0.09           $ (0.71   )
from continuing
operations
Diluted net
income (loss)
from               —              (0.01     )      —               (0.02     )
discontinued
operations
Diluted net        $ 0.08         $ (0.66   )      $ 0.09          $ (0.73   )
income (loss)
Weighted-average
number of shares
outstanding:
Basic              59,109          58,154           58,786           59,944
Diluted            60,971          58,154           60,048           59,944

(1) The Company recorded a non-cash charge of $2.9 million during the fourth
quarter of fiscal 2013 to record the impairment of the full carrying value of
the Company's goodwill. Based on financial market considerations, a history of
recent losses and other factors, the Company's goodwill did not pass a
two-step goodwill impairment valuation test, resulting in the impairment
charge.

(2) In fiscal year 2014, the Company acquired Kentrox and CSI in stock
transactions. Deferred tax liabilities of $9.1 million resulted from the
acquisitions relating primarily to acquired intangible assets. The Company's
anticipated ability to realize deferred tax assets from the reversal of these
deferred tax liabilities resulted in a partial reversal of valuation allowance
related to the Company's deferred tax assets. Income tax expense, excluding
the impact of the acquisitions noted above, was primarily from state income
tax expense in non-unitary states and state taxes based on gross margin, not
taxable income.

(3) In fiscal year 2013, the Company considered both the positive and negative
evidence available to assess its ability to realize the value of its deferred
tax assets. The Company considered negative factors, which include recent
losses and a forecasted cumulative loss position, as well as positive evidence
consisting primarily of projected future earnings. The Company concluded that
the negative evidence outweighed the objectively verifiable positive evidence.
As a consequence, the Company increased the valuation allowance reserve and
tax expense by $34.0 million. This reserve, taken together with the tax
contingency reserve, had the effect of reserving in full all of the Company's
deferred tax assets as of March 31, 2013.


Westell Technologies, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
(Unaudited)

                                            March 31, 2014  March 31, 2013
Assets:
Cash and cash equivalents                    $    35,793      $    88,233
Restricted cash                              —                2,500
Short-term investments                       15,584           24,349
Accounts receivable, net                     15,851           6,689
Inventories                                  24,436           12,223
Prepaid expenses and other current assets    1,975            1,804
Deferred income tax asset                    899              —
Land held-for-sale                           1,044            —
Total current assets                         95,582           135,798
Property and equipment, net                  1,946            1,081
Goodwill                                     30,697           —
Intangible assets, net                       32,356           5,063
Other non-current assets                     393              495
Total assets                                 $    160,974     $    142,437
Liabilities and Stockholders’ Equity:
Accounts payable                             $    6,726       $    4,126
Accrued expenses                             7,813            3,953
Contingent consideration                     2,067            —
Deferred revenue                             1,774            —
Total current liabilities                    18,380           8,079
Deferred revenue non-current                 787              —
Tax contingency reserve long-term            1,072            305
Contingent consideration long-term           574              2,333
Other non-current liabilities                528              643
Total liabilities                            21,341           11,360
Total stockholders’ equity                   139,633          131,077
Total liabilities and stockholders’ equity   $    160,974     $    142,437
                                                                   

Westell Technologies, Inc.
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)

                                                Twelve Months Ended March 31,
                                                 2014            2013
Cash flows from operating activities:
Net income (loss)                                $  5,367         $  (44,038 )
Reconciliation of net income to net cash
provided by (used in) operating activities:
Depreciation and amortization                    5,530            1,381
Goodwill impairment                              —                2,884
Stock-based compensation                         1,871            1,407
Restructuring                                    335              149
Deferred taxes                                   (9,312     )     29,865
Other                                            41               (8         )
Changes in assets and liabilities:
Accounts receivable                              (2,139     )     (979       )
Inventories                                      457              (2,002     )
Accounts payable and accrued liabilities         (1,081     )     (183       )
Other                                            528             (601       )
Net cash provided by (used in) operating         1,597           (12,125    )
activities
Cash flows from investing activities:
Net purchases of short-term investments and      8,765            (9,894     )
debt securities
Acquisitions, net of cash acquired               (66,170    )     (2,524     )
Purchases of property and equipment, net         (443       )     (379       )
Proceeds from sale of assets                     —                15
Changes in restricted cash                       2,500           4,951      
Net cash provided by (used in) investing         (55,348    )     (7,831     )
activities
Cash flows from financing activities:
Purchase of treasury stock                       (359       )     (12,733    )
Proceeds from stock options exercised            1,677           87         
Net cash provided by (used in) financing         1,318           (12,646    )
activities
(Gain) loss of exchange rate changes on cash     (7         )     3
Net increase (decrease) in cash                  (52,440    )     (32,599    )
Cash and cash equivalents, beginning of period   88,233          120,832    
Cash and cash equivalents, end of period         $  35,793       $  88,233  
                                                                             

Westell Technologies, Inc.
Segment Statement of Operations
(Amounts in thousands)
(Unaudited)

                              Three Months Ended March 31, 2014
                               CSI ^(1)   Kentrox    Westell     Total
Revenue                        $ 3,676     $ 3,362     $ 17,383     $ 24,421
Cost of revenue                2,312      1,971      11,614      15,897   
Gross profit                   1,364       1,391       5,769        8,524
Gross margin                   37.1    %   41.4    %   33.2     %   34.9     %
Operating expenses:
Research & development         625        1,021      1,848       3,494    
Segment profit                 $ 739      $ 370      $ 3,921     5,030
Sales & marketing                                                   3,851
General & administrative                                            3,827
Intangible amortization                                             1,320
Restructuring                                                       62       
Operating loss                                                      (4,030   )
Other income                                                        7
Income tax benefit                                                  8,907    
Net income from continuing                                          $ 4,884  
operations

                                        Three Months Ended March 31, 2013
                                             Westell           Total
Revenue                                      $   10,663         $  10,663
Cost of revenue                              6,650             6,650       
Gross profit                                 4,013              4,013
Gross margin                                 37.6         %     37.6        %
Operating expenses:
Research & development                       1,556             1,556       
Segment profit                               $   2,457         2,457
Sales & marketing                                               1,924
General & administrative                                        2,473
Intangible amortization                                         235
Goodwill impairment ^(2)                                        2,884       
Operating loss                                                  (5,059      )
Other income                                                    41
Income tax benefit                                              (32,611     )
Net loss from continuing                                        $  (37,629  )
operations

(1) The results of operations relating to CSI are included in the Company's
Consolidated Financial Statements from the March 1, 2014, acquisition date.

(2) The Company recorded a non-cash charge of $2.9 million during the fourth
quarter of fiscal year 2013 to record the impairment of the full carrying
amount of the Company's goodwill.


Westell Technologies, Inc.
Segment Statement of Operations
(Amounts in thousands)
(Unaudited)

                            Twelve Months Ended March 31, 2014
                             CSI ^(1)   Kentrox     Westell     Total
Revenue                      $ 3,676     $ 46,174     $ 52,223     $ 102,073
Cost of revenue              2,312      22,657      35,146      60,115    
Gross profit                 1,364       23,517       17,077       41,958
Gross margin                 37.1    %   50.9     %   32.7     %   41.1      %
Operating expenses:
Research & development       625        3,778       6,936       11,339    
Segment profit               $ 739      $ 19,739    $ 10,141    30,619
Sales & marketing                                                  14,663
General & administrative                                           14,027
Intangible amortization                                            4,908
Restructuring                                                      335       
Operating loss                                                     (3,314    )
Other loss                                                         (56       )
Income tax benefit                                                 8,782     
Net income from continuing                                         $ 5,412   
operations

                                       Twelve Months Ended March 31, 2013
                                            Westell            Total
Revenue                                     $   38,808          $  38,808
Cost of revenue                             25,483             25,483      
Gross profit                                13,325              13,325
Gross margin                                34.3         %      34.3        %
Operating expenses:
Research & development                      5,928              5,928       
Segment profit                              $   7,397          7,397
Sales & marketing                                               7,492
General & administrative                                        9,310
Intangible amortization                                         887
Restructuring                                                   149
Goodwill impairment ^(2)                                        2,884       
Operating loss                                                  (13,325     )
Other income                                                    175
Income tax expense                                              (29,392     )
Net loss from continuing                                        $  (42,542  )
operations

(1) The results of operations relating to CSI are included in the Company's
Consolidated Financial Statements from the March 1, 2014, acquisition date.

(2) The Company recorded a non-cash charge of $2.9 million during the fourth
quarter of fiscal year 2013 to record the impairment of the full carrying
value of the Company's goodwill.


Westell Technologies, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
(Amounts in thousands, except per share amounts)
(Unaudited)

                 Three Months Ended March 31,  Twelve Months Ended March 31,
                  2014            2013          2014           2013
GAAP net income   $  4,878         $ (38,158 )   $  5,367        $  (44,038  )
(loss)
Adjustments:
Inventory fair
value step-up     833              —             2,160           —
^(1)
Deferred
revenue           169              —             2,089           —
adjustment ^(1)
Amortization of
intangibles ^     1,320            235           4,908           887
(2)
Income taxes      (9,146     )     34,032        (9,146    )     34,032
^(3)
Restructuring     62               —             335             149
^(4)
Stock-based
compensation      578              363           1,871           1,407
^(5)
Goodwill          —                2,884         —               2,884
impairment ^(6)
Loss from
discontinued      6               529          45             1,496       
operations ^(7)
Total             (6,178     )     38,043       2,262          40,855      
adjustments
Non-GAAP net      $  (1,300  )     $ (115    )   $  7,629       $  (3,183   )
income (loss)
GAAP net income
(loss) per
common share:
Basic             $  0.08          $ (0.66   )   $  0.09         $  (0.73    )
Diluted           $  0.08          $ (0.66   )   $  0.09         $  (0.73    )
Non-GAAP net
income (loss)
per common
share:
Basic             $  (0.02   )     $ —           $  0.13         $  (0.05    )
Diluted           $  (0.02   )     $ —           $  0.13         $  (0.05    )
Average number
of common
shares
outstanding:
Basic             59,109           58,154        58,786          59,944
Diluted           60,971           58,154        60,048          59,944
                                                                             
                                                                             
                  Three Months Ended March 31,   Twelve Months Ended March 31,
                  2014            2013         2014           2013        
GAAP operating    12,554           9,072         45,272          26,650
expenses
Adjustments:
Amortization of
intangibles       (1,320     )     (235      )   (4,908    )     (887        )
^(2)
Restructuring     (62        )     —             (335      )     (149        )
^(4)
Stock-based
compensation      (560       )     (356      )   (1,818    )     (1,380      )
^(5)
Goodwill          —               (2,884    )   —              (2,884      )
impairment ^(6)
Total             (1,942     )     (3,475    )   (7,061    )     (5,300      )
adjustments
Non-GAAP
operating         10,612          5,597        38,211         21,350      
expense
                                                                             

                                   Three Months Ended March 31, 2014
                                    Revenue    Gross Profit  Gross Margin
GAAP - Kentrox                      $ 3,362     $  1,391       41.4    %
Inventory fair value step-up ^(1)   —           288
Deferred revenue adjustment ^(1)    169        169       
Non-GAAP - Kentrox                  $ 3,531    $  1,848      52.3    %

                                   Three Months Ended March 31, 2014
                                    Revenue    Gross Profit  Gross Margin
GAAP - CSI                          $ 3,676     $  1,364       37.1    %
Inventory fair value step-up ^(1)   —          545       
Non-GAAP - CSI                      $ 3,676    $  1,909      51.9    %

                                   Twelve Months Ended March 31, 2014
                                    Revenue      Gross Profit  Gross Margin
GAAP - consolidated                 $ 102,073     $  41,958      41.1    %
Inventory fair value step-up ^(1)   —             2,160
Deferred revenue adjustment ^(1)    2,089        2,089      
Non-GAAP - consolidated             $ 104,162    $  46,207     44.4    %

The Company prepares its financial statements based on U.S. Generally Accepted
Accounting Principles (GAAP). This schedule reconciles the Company's GAAP net
income to adjusted or non-GAAP net income. Management believes that these
non-GAAP results provide meaningful supplemental information to investors,
indicate the Company's core performance, and 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.

(1) On April1, 2013 and on March 1, 2014, the Company purchased Kentrox and
CSI, respectively, 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 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 twelve months
ended March 31, 2014.

(2) Amortization of intangibles is a non-cash expense arising from the
acquisition of intangible assets.

(3) In fiscal year 2014, the Company acquired Kentrox and CSI in stock
transactions. Deferred tax liabilities of $9.1 million resulted from the
acquisitions relating primarily to acquired intangible assets. The Company's
anticipated ability to realize deferred tax assets from the reversal of these
deferred tax liabilities resulted in a partial reversal of valuation allowance
related to the Company's deferred tax assets. The fiscal year 2014 adjustment
removes the related income tax benefit. The Company is in a full valuation
allowance in fiscal year 2014. The fiscal year 2013 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.

(6) The Company recorded a non-cash charge of $2.9 million during the fourth
quarter of fiscal 2013 to record the impairment of the full carrying value of
the Company's goodwill.

(7) Historical results of operations of the CNS division and ConferencePlus
are presented as discontinued operations.

Contact:

Westell Technologies, Inc.
Tom Minichiello
Chief Financial Officer
+1 (630) 375-4740
tminichiello@westell.com
 
Press spacebar to pause and continue. Press esc to stop.