Westell swings to profit despite revenue drop

Westell Technologies

By Charlene Zhang
Medill Reports

Westell Technologies Inc. (NASDAQ: WSTL), a wireless infrastructure solutions provider, earned $799,000, or 5 cents per diluted share, in its third quarter ended Dec. 31, compared with a loss of $1.8 million, or 12 cents per share, slightly beating the lone analyst’s estimate of a profit of 3 cents per share, despite a shrinkage of revenue.

In a conference call the company emphasized a sequential improvement from earnings of $720,000 in the prior quarter ended Sept. 30.

Third-quarter revenues declined 8.7 percent to $13.7 million from $15 million in the year-earlier period.

“We generated even higher profit margins and cash flow in a historically low revenue quarter,” said Westell’s interim CEO Kirk Brannock in a prepared statement. “These positive results illustrate the tremendous operating leverage we now have in the business.”

Brannock added in a conference call that sequentially decreasing revenue of the In-Building Wireless segment is expected to be boosted by Westell’s current set of public safety products and growing original equipment manufacturer (OEM) initiatives that will bring certified solutions from third parties to increase market share.

Another major cause of a shrinking revenue is Westell’s Communication Network Solutions segment, which primarily deploy product lines outdoors. The segment revenue decreased to $2.7 million from $4.6 million in the prior quarter, down 41.3 percent. Chief Financial Officer Tom Minichiello said the approaching winter months resulted in seasonally low revenue in December.

Intelligent Site Management & Services, however, contributed $5.8 million to the total revenue, up 23.4 percent since last quarter, offsetting the dwindling revenue of the other two segments.

“The ISMS business achieved its highest quarterly revenue level in two years,” said Brannock in the conference call. “We are seeing a trend of increased focus and spending for remote monitoring and we are seeking new customers.”

There was an uptick of the international customer base and the global customers that operated in the U.S., said Brannock in response to Mike Latimore of Northland Capital, who commended Westell on “a nice job” on its EBITDA in the quarter.

Brannock said Westell will leverage the product portfolio and product development including the emerging centralized radio access networks organically, and constantly evaluate and acquire small, niche and creative businesses that build on customer diversification.

When queried by one of the Westell holders about the abrupt departure of the previous CEO Matthew Brady, Brannock said, “there was another opportunity that he felt he was more suited for . . . nothing astounding to cause him to leave.”

In the nine months ended Dec. 31 Westell earned $947,000, or 6 cents per diluted share, compared with a loss of $15.4 million, or $1 per diluted share, in the prior-year period. Revenues slipped to $47.5 million from $47.6 million.

The company shares closed at $3.22, up 12 cents or 3.9 percent.

Photo at top: Logo of Westell Technologies (Westell Technologies Inc.)