Westell Reports Fiscal 2020 Second Quarter Results
AURORA, Ill., Nov. 13, 2019 (GLOBE NEWSWIRE) -- Westell Technologies, Inc. (NASDAQ: WSTL), a leading provider of high-performance network infrastructure solutions, today announced results for its fiscal 2020 second quarter ended September 30, 2019 (2Q20). Management will host a conference call to discuss financial and business results tomorrow, Thursday, November 14, 2019, at 9:30 AM Eastern Time.
Revenue was $7.6 million, compared with $9.0 million in the prior quarter. Net loss in 2Q20 was $3.6 million, compared with a net loss of $2.2 million in the prior quarter. The losses include significant charges for excess and obsolete inventory of $1.3 million in 2Q20, compared to $0.6 million in 1Q20. Inventory charges increased as a result of technology shifts and changing customer plans which lowered the sales outlook for certain legacy products.
“Second-quarter revenue and net loss continued our recent downward trend,” said Tim Duitsman, Westell’s newly appointed President and CEO. “In efforts to reverse that trend, we narrowed our product development to the most promising new products, with a keen focus on public safety, fiber connectivity solutions and remote monitoring. These areas play to Westell’s strengths and we believe offer the fastest paths to revenue growth. On the cost side, we executed a substantial restructuring in October that resulted in charges of approximately $0.2 million and reduced company expenses by at least $1.7 million a year. Going forward, we also do not expect inventory charges, which depressed our gross margins, to continue at the recent levels.”
| Consolidated Results | 2Q20 3 months ended 9/30/19 |
1Q20 3 months ended 6/30/19 |
+ increase / - decrease |
||||||
| Revenue | $7.6M | $9.0M | -$1.4M | ||||||
| Gross Margin | 20.9% | 36.1% | -15.2% | ||||||
| Operating Expenses | $5.3M | $5.6M | -$0.3M | ||||||
| Net Income (Loss) | ($3.6M) | ($2.2M) | -$1.4M | ||||||
| Earnings (Loss) Per Share | ($0.23) | ($0.14) | -$0.09 | ||||||
| Non-GAAP Operating Expenses (1) | $4.8M | $5.0M | -$0.2M | ||||||
| Non-GAAP Net Income (Loss) (1) | ($3.1M) | ($1.6M) | -$1.5M | ||||||
| Non-GAAP Earnings (Loss) Per Share (1) | ($0.20) | ($0.10) | -$0.10 | ||||||
| Ending Cash | $21.7M | $24.1M | -$2.4M | ||||||
| (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 decrease was driven by lower sales in commercial repeaters, RF system components, and passive DAS conditioners offset in part by an increase in public safety revenue. IBW’s gross margin decrease primarily reflects the impact of the lower sales against fixed costs. It also includes an excess and obsolete inventory charge of $0.5 million, compared to $0.4 million in the prior quarter.
| ($ in thousands) | 2Q20 3 months ended 9/30/19 |
1Q20 3 months ended 6/30/19 |
+ increase / - decrease |
||||||
| IBW Segment Revenue | $2,618 | $2,923 | -$305 | ||||||
| IBW Segment Gross Margin | 15.8% | 33.3% | -17.5% | ||||||
| IBW Segment R&D Expense | $403 | $399 | $4 | ||||||
| IBW Segment Profit | $10 | $573 | -$563 | ||||||
Intelligent Site Management (ISM) Segment
ISM’s revenue decrease was due to lower sales of remote units, primarily due to a decrease in orders for one large domestic service provider customer. ISM’s gross margin decrease was primarily driven by an excess and obsolete inventory charge of $0.4 million, compared to $0.1 million in the prior quarter.
| ($ in thousands) | 2Q20 3 months ended 9/30/19 |
1Q20 3 months ended 6/30/19 |
+ increase / - decrease |
||||||
| ISM Segment Revenue | $2,646 | $3,095 | -$449 | ||||||
| ISM Segment Gross Margin | 39.4% | 51.0% | -11.6% | ||||||
| ISM Segment R&D Expense | $619 | $701 | -$82 | ||||||
| ISM Segment Profit | $423 | $878 | -$455 | ||||||
Communication Network Solutions (CNS) Segment
CNS’s revenue decrease was due to lower sales across nearly all product lines. CNS’s gross margin decrease was due to an increased excess and obsolete inventory charge, which was $0.4 million compared to $0.1 million in the prior quarter, mix changes and cost-absorption effects of lower revenue.
| ($ in thousands) | 2Q20 3 months ended 9/30/19 |
1Q20 3 months ended 6/30/19 |
+ increase / - decrease |
||||||
| CNS Segment Revenue | $2,305 | $2,984 | -$679 | ||||||
| CNS Segment Gross Margin | 5.4% | 23.3% | -17.9% | ||||||
| CNS Segment R&D Expense | $427 | $456 | -$29 | ||||||
| CNS Segment Profit (Loss) | $(303) | $239 | -$542 | ||||||
Conference Call Information
Management will discuss financial and business results during the quarterly conference call on Thursday, November 14, 2019, at 9:30 AM Eastern Time. Investors may quickly register online in advance of the call at https://www.conferenceplus.com/Westell. After registering, participants receive dial-in numbers, a passcode and a registration ID that is used to uniquely identify their presence and automatically join them into the audio conference. A participant may also register by telephone on November 14, 2019, by calling (888) 206-4065 and providing the operator confirmation number 49124964.
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 https://www.westell.com/.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained herein that are not historical facts or that contain the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “plan,” “should,” or derivatives thereof and other words of similar meaning are forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, product demand and market acceptance risks, customer spending patterns, need for financing and capital, economic weakness in the United States (“U.S.”) economy and telecommunications market, the effect of international economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), the impact of competitive products or technologies, competitive pricing pressures, customer product selection decisions, product cost increases, component supply shortages, new product development, excess and obsolete inventory, commercialization and technological delays or difficulties (including delays or difficulties in developing, producing, testing and selling new products and technologies), the ability to successfully consolidate and rationalize operations, the ability to successfully identify, acquire and integrate acquisitions, the effect of the Company's accounting policies, retention of key personnel and other risks more fully described in the Company's SEC filings, including the Form 10-K for the fiscal year ended March 31, 2019, 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, | ||||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| Revenue | $ | 7,569 | $ | 9,002 | $ | 10,106 | $ | 16,571 | $ | 23,143 | ||||||||||
| Cost of revenue | 5,990 | 5,756 | 5,913 | 11,746 | 13,015 | |||||||||||||||
| Gross profit | 1,579 | 3,246 | 4,193 | 4,825 | 10,128 | |||||||||||||||
| Gross margin | 20.9 | % | 36.1 | % | 41.5 | % | 29.1 | % | 43.8 | % | ||||||||||
| Operating expenses: | ||||||||||||||||||||
| Research & Development | 1,449 | 1,556 | 1,843 | 3,005 | 3,275 | |||||||||||||||
| Sales and marketing | 2,259 | 2,332 | 1,876 | 4,591 | 4,013 | |||||||||||||||
| General and administrative | 1,249 | 1,364 | 1,400 | 2,613 | 2,934 | |||||||||||||||
| Intangible amortization | 308 | 308 | 832 | 616 | 1,822 | |||||||||||||||
| Total operating expenses | 5,265 | 5,560 | 5,951 | 10,825 | 12,044 | |||||||||||||||
| Operating profit (loss) | (3,686 | ) | (2,314 | ) | (1,758 | ) | (6,000 | ) | (1,916 | ) | ||||||||||
| Other income, net | 125 | 164 | 165 | 289 | 284 | |||||||||||||||
| Income (loss) before income taxes | (3,561 | ) | (2,150 | ) | (1,593 | ) | (5,711 | ) | (1,632 | ) | ||||||||||
| Income tax benefit (expense) | — | (7 | ) | (10 | ) | (7 | ) | (10 | ) | |||||||||||
| Net income (loss) from continuing operations | (3,561 | ) | (2,157 | ) | (1,603 | ) | (5,718 | ) | (1,642 | ) | ||||||||||
| Income (loss) from discontinued operations (1) | — | — | (138 | ) | — | (138 | ) | |||||||||||||
| Net income (loss) | $ | (3,561 | ) | $ | (2,157 | ) | $ | (1,741 | ) | $ | (5,718 | ) | $ | (1,780 | ) | |||||
| Net income (loss) per share: | ||||||||||||||||||||
| Basic net income (loss) | $ | (0.23 | ) | $ | (0.14 | ) | $ | (0.11 | ) | $ | (0.37 | ) | $ | (0.11 | ) | |||||
| Diluted net income (loss) | $ | (0.23 | ) | $ | (0.14 | ) | $ | (0.11 | ) | $ | (0.37 | ) | $ | (0.11 | ) | |||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||||||
| Basic | 15,512 | 15,455 | 15,583 | 15,483 | 15,602 | |||||||||||||||
| Diluted | 15,512 | 15,455 | 15,583 | 15,483 | 15,602 | |||||||||||||||
| (1) 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. On July 24, 2019, the Company signed a settlement agreement related to this matter. The $345K settlement, which was fully covered by the accrual on March 31, 2019, will be paid in the quarter ended December 31, 2019. | ||||||||||||||||||||
Westell Technologies, Inc.
Condensed Consolidated Balance Sheet
(Amounts in thousands)
| September 30, 2019 (Unaudited) |
March 31, 2019 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 21,716 | $ | 25,457 | ||||
| Accounts receivable, net | 5,033 | 6,865 | ||||||
| Inventories | 8,318 | 9,801 | ||||||
| Prepaid expenses and other current assets | 1,839 | 1,706 | ||||||
| Total current assets | 36,906 | 43,829 | ||||||
| Land, property and equipment, net | 1,096 | 1,298 | ||||||
| Intangible assets, net | 4,547 | 3,278 | ||||||
| Right-of-use assets on operating leases, net | 699 | — | ||||||
| Other non-current assets | 431 | 492 | ||||||
| Total assets | $ | 43,679 | $ | 48,897 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable | $ | 2,742 | $ | 2,313 | ||||
| Accrued expenses | 4,162 | 3,567 | ||||||
| Deferred revenue | 624 | 1,217 | ||||||
| Total current liabilities | 7,528 | 7,097 | ||||||
| Deferred revenue non-current | 330 | 444 | ||||||
| Other non-current liabilities | 102 | 176 | ||||||
| Total liabilities | 7,960 | 7,717 | ||||||
| Total stockholders’ equity | 35,719 | 41,180 | ||||||
| Total liabilities and stockholders’ equity | $ | 43,679 | $ | 48,897 | ||||
Westell Technologies, Inc.
Condensed Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
| Three months ended September 30, |
Six months ended September 30, |
||||||||||||||
| 2019 | 2019 | 2018 | |||||||||||||
| Cash flows from operating activities: | |||||||||||||||
| Net income (loss) | $ | (3,561 | ) | $ | (5,718 | ) | $ | (1,780 | ) | ||||||
| Reconciliation of net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||
| Depreciation and amortization | 491 | 942 | 2,113 | ||||||||||||
| Stock-based compensation | 201 | 445 | 586 | ||||||||||||
| Loss (gain) on sale of fixed assets | (11 | ) | (11 | ) | 1 | ||||||||||
| Exchange rate loss (gain) | 6 | 3 | 1 | ||||||||||||
| Changes in assets and liabilities: | |||||||||||||||
| Accounts receivable | 770 | 1,829 | 1,914 | ||||||||||||
| Inventory | 1,625 | 1,483 | (1,148 | ) | |||||||||||
| Accounts payable and accrued expenses | 210 | 950 | 770 | ||||||||||||
| Deferred revenue | (389 | ) | (707 | ) | (655 | ) | |||||||||
| Prepaid expenses and other current assets | (155 | ) | (122 | ) | (315 | ) | |||||||||
| Other assets | 465 | (638 | ) | 1 | |||||||||||
| Net cash provided by (used in) operating activities | (348 | ) | (1,544 | ) | 1,488 | ||||||||||
| Cash flows from investing activities: | |||||||||||||||
| Net maturity (purchase) of short-term investments | — | — | 2,779 | ||||||||||||
| Purchase of product licensing rights (1) | (1,950 | ) | (1,950 | ) | — | ||||||||||
| Purchases of property and equipment, net | (45 | ) | (59 | ) | (153 | ) | |||||||||
| Net cash provided by (used in) investing activities | (1,995 | ) | (2,009 | ) | 2,626 | ||||||||||
| Cash flows from financing activities: | |||||||||||||||
| Purchase of treasury stock | (16 | ) | (189 | ) | (605 | ) | |||||||||
| Net cash provided by (used in) financing activities | (16 | ) | (189 | ) | (605 | ) | |||||||||
| Gain (loss) of exchange rate changes on cash | (2 | ) | 1 | (1 | ) | ||||||||||
| Net increase (decrease) in cash and cash equivalents | (2,361 | ) | (3,741 | ) | 3,508 | ||||||||||
| Cash and cash equivalents, beginning of period | 24,077 | 25,457 | 24,963 | (2) | |||||||||||
| Cash and cash equivalents, end of period | $ | 21,716 | $ | 21,716 | $ | 28,471 | |||||||||
| (1) During 2Q20, the Company made a partial payment for the purchase of product licensing rights. The remaining $1.0 million due is recorded in Accounts Payable as of September 30, 2019. The corresponding asset is recorded in intangible assets. | |||||||||||||||
| (2) As of March 31, 2018, the Company had $2.8 million 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, 2019 | Three months ended June 30, 2019 | ||||||||||||||||||||||||||||||
| IBW | ISM | CNS | Total | IBW | ISM | CNS | Total | ||||||||||||||||||||||||
| Total revenue | $ | 2,618 | $ | 2,646 | $ | 2,305 | $ | 7,569 | $ | 2,923 | $ | 3,095 | $ | 2,984 | $ | 9,002 | |||||||||||||||
| Gross profit | 413 | 1,042 | 124 | 1,579 | 972 | 1,579 | 695 | 3,246 | |||||||||||||||||||||||
| Gross margin | 15.8 | % | 39.4 | % | 5.4 | % | 20.9 | % | 33.3 | % | 51.0 | % | 23.3 | % | 36.1 | % | |||||||||||||||
| R&D expenses | 403 | 619 | 427 | 1,449 | 399 | 701 | 456 | 1,556 | |||||||||||||||||||||||
| Segment profit (loss) | $ | 10 | $ | 423 | $ | (303 | ) | $ | 130 | $ | 573 | $ | 878 | $ | 239 | $ | 1,690 | ||||||||||||||
Year-over-Year Quarter Comparison
| Three months ended September 30, 2019 | Three months ended September 30, 2018 | ||||||||||||||||||||||||||||||
| IBW | ISM | CNS | Total | IBW | ISM | CNS | Total | ||||||||||||||||||||||||
| Total revenue | $ | 2,618 | $ | 2,646 | $ | 2,305 | $ | 7,569 | $ | 3,646 | $ | 2,646 | $ | 3,814 | $ | 10,106 | |||||||||||||||
| Gross profit | 413 | 1,042 | 124 | 1,579 | 1,692 | 1,422 | 1,079 | 4,193 | |||||||||||||||||||||||
| Gross margin | 15.8 | % | 39.4 | % | 5.4 | % | 20.9 | % | 46.4 | % | 53.7 | % | 28.3 | % | 41.5 | % | |||||||||||||||
| R&D expenses | 403 | 619 | 427 | 1,449 | 867 | 558 | 418 | 1,843 | |||||||||||||||||||||||
| Segment profit (loss) | $ | 10 | $ | 423 | $ | (303 | ) | $ | 130 | $ | 825 | $ | 864 | $ | 661 | $ | 2,350 | ||||||||||||||
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, | ||||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| GAAP consolidated operating expenses | $ | 5,265 | $ | 5,560 | $ | 5,951 | $ | 10,825 | $ | 12,044 | ||||||||||
| Adjustments: | ||||||||||||||||||||
| Stock-based compensation (1) | (181 | ) | (234 | ) | (284 | ) | (415 | ) | (563 | ) | ||||||||||
| Amortization of acquisition-related intangibles (2) | (308 | ) | (308 | ) | (832 | ) | (616 | ) | (1,822 | ) | ||||||||||
| Total adjustments | (489 | ) | (542 | ) | (1,116 | ) | (1,031 | ) | (2,385 | ) | ||||||||||
| Non-GAAP consolidated operating expenses | $ | 4,776 | $ | 5,018 | $ | 4,835 | $ | 9,794 | $ | 9,659 | ||||||||||
| Three months ended | Six months ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| GAAP consolidated net income (loss) | $ | (3,561 | ) | $ | (2,157 | ) | $ | (1,741 | ) | $ | (5,718 | ) | $ | (1,780 | ) | |||||
| Less: | ||||||||||||||||||||
| Income tax benefit (expense) | — | (7 | ) | (10 | ) | (7 | ) | (10 | ) | |||||||||||
| Other income, net | 125 | 164 | 165 | 289 | 284 | |||||||||||||||
| Discontinued operations (3) | — | — | (138 | ) | — | (138 | ) | |||||||||||||
| GAAP consolidated operating profit (loss) | $ | (3,686 | ) | $ | (2,314 | ) | $ | (1,758 | ) | $ | (6,000 | ) | $ | (1,916 | ) | |||||
| Adjustments: | ||||||||||||||||||||
| Stock-based compensation (1) | 201 | 244 | 295 | 445 | 586 | |||||||||||||||
| Amortization of acquisition-related intangibles (2) | 308 | 308 | 832 | 616 | 1,822 | |||||||||||||||
| Total adjustments | 509 | 552 | 1,127 | 1,061 | 2,408 | |||||||||||||||
| Non-GAAP consolidated operating profit (loss) | $ | (3,177 | ) | $ | (1,762 | ) | $ | (631 | ) | $ | (4,939 | ) | $ | 492 | ||||||
| Amortization of product licensing rights (4) | 65 | — | — | 65 | — | |||||||||||||||
| Depreciation | 118 | 143 | 139 | 261 | 291 | |||||||||||||||
| Non-GAAP consolidated Adjusted EBITDA (5) | $ | (2,994 | ) | $ | (1,619 | ) | $ | (492 | ) | $ | (4,613 | ) | $ | 783 | ||||||
| Three months ended | Six months ended | |||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| GAAP consolidated net income (loss) | $ | (3,561 | ) | $ | (2,157 | ) | $ | (1,741 | ) | $ | (5,718 | ) | $ | (1,780 | ) | |||||
| Adjustments: | ||||||||||||||||||||
| Stock-based compensation (1) | 201 | 244 | 295 | 445 | 586 | |||||||||||||||
| Amortization of acquisition-related intangibles (2) | 308 | 308 | 832 | 616 | 1,822 | |||||||||||||||
| Discontinued operations (3) | — | — | 138 | 138 | ||||||||||||||||
| Total adjustments | 509 | 552 | 1,265 | 1,061 | 2,546 | |||||||||||||||
| Non-GAAP consolidated net income (loss) | $ | (3,052 | ) | $ | (1,605 | ) | $ | (476 | ) | $ | (4,657 | ) | $ | 766 | ||||||
| GAAP consolidated net income (loss) per common share: | ||||||||||||||||||||
| Diluted | $ | (0.23 | ) | $ | (0.14 | ) | $ | (0.11 | ) | $ | (0.37 | ) | $ | (0.11 | ) | |||||
| Non-GAAP consolidated net income (loss) per common share: | ||||||||||||||||||||
| Diluted | $ | (0.20 | ) | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.30 | ) | $ | 0.05 | ||||||
| Average number of common shares outstanding: | ||||||||||||||||||||
| Diluted | 15,512 | 15,455 | 15,583 | 15,483 | 15,713 | |||||||||||||||
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 acquisition-related intangibles is a non-cash expense arising from intangible assets previously acquired as a result of a business acquisition.
(3) 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. On July 24, 2019, the Company signed a settlement agreement related to this matter. The amount to be paid under the settlement agreement is fully covered by the accrual.
(4) Amortization of the recently acquired product licensing rights are excluded from Adjusted EBITDA, but included in the Non-GAAP consolidated net income (loss), because the amortization is related to the ongoing operation of the business in the ordinary course.
(5) EBITDA is a non-GAAP measure that represents Earnings Before Interest, Taxes, Depreciation, and Amortization. The Company presents Adjusted EBITDA.
| For additional information, contact: | |
| Tim Duitsman | |
| Chief Executive Officer | |
| Westell Technologies, Inc. | |
| +1 (630) 898 2500 | |
| tduitsman@westell.com | |
Released November 13, 2019