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Westell Technologies Inc. (



F2Q11 (Qtr End 09/30/2010) Earnings Call

October 21, 2010 9:00 am ET


Brian Cooper - Chief Financial Officer

Rick Gilbert - Chairman, President and CEO


Jeff Linroth - Leaving It Better

Brian Horey - Aurelian

Steve White - RMB Capital Management

Madhu Kodali - Yaksha Capital


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Welcome to the Westell Technologies Second Quarter Fiscal Year 2011 Earnings Conference Call. My name is Christine and I will be your operator for today's conference. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Brian Cooper, Chief Financial Officer. Mr. Cooper, you may begin.

Brian Cooper

Thank you, Christine. I want to welcome everybody to our conference call covering the results for Westell Technologies during our fiscal year 2011 second quarter which ended September 30. We issued our earnings news release last night and you can find the copy posted at This morning Rick Gilbert and I will update you on the business and our financial results.

Before we begin, I'd like to note that our presentation and discussion contain forward-looking statements about future results, performance or achievements financial and otherwise. Words such as “believe”, “expect”, “anticipate”, “estimate”, “plan”, “trend” and similar expressions are intended to identify such forward-looking statements. These statements reflect management's current expectations, estimates, and assumptions.

These forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Westell's actual results, performance or achievements to differ material from those discussed.

A description of factors that may affect our future results is provided in the company's SEC filings including the Form 10-K for the fiscal year ended March 31, 2009, under the section "Risk Factors." The forward-looking statements made in this presentation are being made as of the date and time of this conference call. Westell disclaims any obligation to update or revise any forward-looking statements based on new information, future events or other factors.

I would like to turn the call to Rick Gilbert, Chairman, President and Chief Executive Officer of Westell.

Rick Gilbert

Good morning. Thank you for joining Westell Technologies second quarter fiscal 2011 earnings conference call. I am Rick Gilbert, Westell's Chairman and CEO. During this call, I will discuss developments in the business and then turn the call over to Brian Cooper who will discuss the second quarter financial results. At the end of the call Brian and I will answer the questions.

I am pleased to report that our second quarter results show increases in revenue, earnings, and cash flow with all three business units contributing positive operating income for the first time during my tenure at Westell. During the second quarter, we recorded earnings per share of $0.07 on a fully diluted basis, an increase of $0.03 over our EPS for Q2 of last year.

Our consolidated revenue increased by 8% compared with Q2 of last year. Consolidated gross margins of 32.3% combined with flat operating expenses yielded an improvement in net income of 65% versus Q2 of last year. During the quarter, we also produced $8.3 million increase in cash and cash equivalents to $70.1 million, which represents more than a $1 per share.

I will focus the rest of my comments in the second quarter performance of our business units as compared with their performance during the last quarter. When compared to last quarter, Customer Networking Solution has experienced a 64% increase in revenue, which was driven by very strong demand for our VersaLine gateways coupled with increased segments of our UltraLine Series 3 products.

As I said it in our last call, we'd expected that in the short-term CNS which increased, but less profitable sales as we continue to clear out remaining inventories associated with End-of-Life products such as certain skew variance of our UltraLine Series 3. With that, this is exactly what occurred in the second quarter with sales of $5.6 million of UltraLine product having the effect of reducing CNS gross margins from 23.9% in Q1 to 16.3% in Q2 despite good margins on VersaLine products.

However, with extent is also down CNS finally produced a positive operating income of $151,000 for the quarter versus a loss of $437,000 last quarter. This was an important milestone for CNS.

On the strategic front Home Cloud project continues in the development phase. During the quarter, we added a few new hires to increase staffing for the program. We received our first prototype hardware units from our contract manufacture and have made good progress developing the primary components for the software system.

At this time, we expect the initial Home Cloud product to be ready the trails by late Q1 of FY 12, which represents a delay of about three months from our initial plan.

Outside Plant Systems had another great quarter with revenue slightly up over the last quarter and operating income up by 16%. The business continues to be driven by strong sales of our T1 SmartJack network interface units with associated mountings enclosures related to the backhaul of cellular traffic.

On the strategic front, OSP which has received very positive customer feedback on the [e-Smart] accessed product lines which are the Ethernet based backhaul products that I have described in previous calls. The first two e-Smart access projects have already reached the testing stage and are on schedule for customer availability late in this fiscal year.

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