Energen Corporation (

EGN

)

F3Q12 Earnings Call

January 25, 2012 09:30 am ET

Executives

Brian Cooper – Chief Financial Officer

Rick Gilbert – Chairman, President and Chief Executive Office

Analysts

Greg Mesniaeff - Kaufman Brothers

Mike Latimore - North Capital

Greg Burns - Sidoti & Co

Richard Greulich - REG Capital Advisors

Brian Horey - Aurelian Management

[Jeff Menrab] – [Leading it Better]

Presentation

Operator

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Welcome to the F3Q 2012 earnings conference call. My name is Sandra and I will be your operator for today’s call. (Operator instructions.) I will now turn the call over to Brian Cooper, Chief Financial officer. Mr. Cooper, you may begin.

Brian

Cooper

Thank you. I want to welcome everyone to our conference call covering the results for Westell Technologies during our F3Q 2012, which ended December 31

st

. We issued our earnings news release last night and there was a copy posted on our website Westell.com. On this call Rick Gilbert and I will update you on the business, our strategy and our financial results. Before we begin please note that our presentation and discussion contain forward looking statements about future results, performance or achievements financial and otherwise.

Forward such as believe, expect, and anticipate, estimate, plan, outlook, trend and similar expressions are intended to identify such forward looking statements. This statement reflects management’s current expectations, estimates and assumptions. These forward looking statements are not guarantees of future performance and involve risk and uncertainties that may cause Westell’s actual results, performance or achievements to differ materially from those discussed. Our descriptions of factors that may reflect our future results is provided in the company’s CSS filings including foreign 10K for the FY ending March 31

st

, 2011 under the section “risk factors.”

The forward looking statements made in this presentation are being as of the date and time of this conference call. Westell disclaims any obligation to update, revise any forward looking statements based on new information, future events or other factors. Our presentation today may also include non-gap financial measure. We have provided reconciliations to the most comparable gap measures in our earning press release which is available on our website, Westell.com.

I will begin this morning with a review of the financial results and related developments for our F3Q. I will then turn the call over to Rick Gilbert, Westell’s chief executive officer who will provide some comments and perspective on our strategic direction. For F3Q 2012 Westell reported revenue of $14.4 million compared with $37.9 million in the 3Q a year ago. Earnings were $0.29 per diluted share including $0.30 from discontinued operations and a $0.01 loss per share from continuing operations. In the prior year quarter earnings were $0.04 per share including $0.01 from discontinued operation and $0.03 from continuing operations.

The most important strategic event for Westell during the quarter was our sell of our conference plus subsidiary. Later during this call Rick will talk about the rationale for this transaction. The transaction closed on December 31

st

and results in Westell recording a gain of $32.8 million before taxes or $20 million after taxes. In addition, conference plus has reported at discontinued operation as a result of this sale. [NetAcad] proceeds from the transaction after related cost and taxes are estimated at $37.7 million. As in the CNS sale our federal tax liability for the conference plus sale is shielded by net operating loss carry forwards. We are expecting to pay approximately $1.3 million in cash for transaction related state income taxes.

A second significant event during the quarter was the complacent of shipments of new DSL modems and gateways by our CNS business unit. Westell sold the majority of CNS to Net Gear in April and has been winding down its final commitments to Verizon, our sole remaining customer for those products. CNS continues with its home cloud development project but other future activities will be extremely limited. For the quarter CNS reported $6.7 million of revenue compared with $26.2 million in the prior year quarter. As has been true over the last several quarters the current quarter included some revenues from ancillary products and services.

CNS gross margin was 24% compared with 18% in last year’s 3Q. The margin benefited from pricing improvements, mix and ancillary products. Gross profit was $1.6 million down $3.1 million versus 3Q last year. Operating expenses were $0.9 million in 3Q down $3.2 million compared to last year. Expenses continue to include funding from the development of home cloud, at a run rate at about $2.5 million per year. On this basis CNS produced operating income of $0.7 million for the quarter. The CNS and Conference Plus transaction leave Westell focused on our outside plant business. For the fiscal 3Q our outside plant systems business unit continued to experience extremely weak demand. Revenue of $7.7 million down 35% compared with last year’s 3Q. Spending by our major customers was severely constrained apparently as a result of acquisition activities, budget, inventory management and other factors.

We expect demand for most products to rebound toward the norm this quarter but we anticipate continued softness in orders for our network interface units. An IU demand had shifted toward Ethernet based products and our Ethernet products are not yet qualified at major customers. Gross margin for outside plant declined at 35% versus 43% in 3Q a year ago as a result on higher overheads on lower revenue. Gross profit was $2.7 million compared to $5.1 million in last year’s 3Q. Operating expenses were $3.3 million up $0.3 million from a year ago. This spending reflects our ongoing development of new offerings such as our Ethernet products.

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