Q3 2020 Earnings Call

Well I can tell what stuff, that's clearly 2023rd quarter earnings call.

My name is healthier and happier operator for today's call.

Hi, all participants that I listen only mode. Later, we'll conduct a question answer session.

Turning to question answer session, we'd be happy question. Please press Star then one and you touched on.

Please note that this company is being recorded I.

I would not have color to 10 or deep well, some interim chief financial officer, Jennifer We began.

Thank you Sylvia good morning, and welcome to our conference call to discuss the fiscal year, 2023rd quarter results for Westell technologies and.

The news release, we issue.

Yesterday afternoon, it's posted on our website Westell dot com.

On this call pension plan, what counts President and Chief Executive Officer will begin with a discussion of our business and Brasenose apart.

I will give an update you on our financial results for the quarter and we will conclude by taking your question.

Before we get please note that our presentation and discussion contain forward looking statements about future results performance or achievements financial and other why.

Words, such as should believe expect trend and similar expressions are intended to identify such forward looking statement.

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Lets reflect managements current expectations estimates and assumptions.

These forward looking statements are not guarantees of future performance and involve risks and uncertainties that may cause <unk> actual results performance or achievements to differ materially from Dr. Scott.

A description of factors.

That may affect our feature result is provided in the company FCC filings, including form 10-K for the fiscal year ended March 31st 2019 under the section risk factor.

The forward looking statements made in this presentation are being made as opposed to date and time of this conference call.

Hello.

Disclaims any obligation to update or revise any forward looking statements based on new information future events or other factors.

Please also note that we present non-GAAP financial information in our news release that because we believe that non-GAAP measures provide meaningful supplemental information to both management and.

And then faster.

The non-GAAP information reflects the company's core ongoing operating performance.

So what <unk> comparison across reporting periods.

Our discussion of results today will include non-GAAP financial measures.

We've provided reconciliations to the most comparable GAAP measures in our news release.

Well now turn the call overcapacity.

Thank you Jennifer and good morning, everyone.

Our results for the quarter exceeded our expectations as we began to show traction with our turnaround plan.

Getting to profitability is critical to us and while we reported and not watch for the fiscal third quarter, we delivered significant.

Over the previous quarter.

We saw positive revenue gains in our strategic product areas. During the quarter. We also made significant progress in reducing our expenses during the quarter and ended the quarter with a higher cash balance.

The West L. team is strategically aligned and he's working hard to deliver growth and profitability as soon as.

Possible, we made good progress on those calls last quarter.

Looking at specifics from our third quarter overall revenue was down about $400000 compared to the second quarter.

There were five less shipping days and the third quarter end customers typically purchase and install less equipment during the holiday season.

The bump we sometimes see in the end of budget, you're spending by large customers was also smaller this year as some customers appear to be cautious with their spending.

Even with those factors revenue for public safety and fiber products increased over the previous quarter, and we expanded our customer base for site.

Management products.

Gross margin improved to 38.8% compared to Q2, where margins were pressured by a significant $1.3 million charge for excess and obsolete inventory.

Our operations team implemented new supply chain processes during the third quarter, which should improve our inventory.

Management and cash flow going forward.

In addition, we've been working hard to reduce our expenses on the last earnings call, we discuss bringing down non-GAAP quarterly expenses to under $4.4 million in Q3, non-GAAP expenses came in substantially better at $3.7 million.

All of Westells departments contributed by reducing their expenses.

Margin and expense improvement reduced our non-GAAP net loss to $850000 in Q3, a large improvement over Q2.

On another positive note, we ended the quarter with more cash than the previous quarter $22 million versus.

It is $21.7 million in Q2.

While Q3 started to turn the corner for operating results. We know we need to grow profitable revenue that is our highest priority going forward.

Our revenue growth will come from new products and expanding our customer base.

We continue to drive our revenue expansion.

Strategy in three key product areas public safety fiber connectivity and remote monitoring I'd like to share progress.

Public safety falls within our in building wireless or IBW segment and sales of those products increased over the prior quarter just as importantly.

We made progress and expand in expanding product offerings to boost future revenue in December we manufactured and shipped a new battery backup unit known as a BBU for our class a public safety repeaters.

The majority of repeater installs include a BBU so bundling this new product with.

Peter should continue to grow our public safety sales.

Then in January we completed our first builds of the class a public safety repeaters under the licensing agreement, we announced last November controlling the manufacturing should allow us to better manage lead times inventory and costs.

Repeater lead.

Times are important to our customers and quick delivery will be one of our competitive advantages.

Turning to the integrated site management or is that business, we added to our customer base by selling our remote monitoring products to a rural electric cooperative.

And this application hockey Musharraf, perhaps.

Correct.

And remote monitoring units will be used to monitor environmental conditions in remote locations.

The I assume products have been very successful tower operators for remote cell site monitoring and we're optimistic about extending those same capabilities into similar adjacent markets like this one.

During Q3, our engineering team delivered the first working prototypes of our new compact monitoring product for small cells fixed wireless sites.

We signed up a large carrier to spots or the field trial, which is planned for the third quarter of this calendar year.

The sales team.

Team is also working with potential new customers to deploy the same platform for Internet of things energy management and other similar applications.

The compact low cost platform should bring site monitoring to remote locations that are not being monitored today.

Within communication network solutions or.

Yes, we continue to grow sales of our fiber connectivity products last quarter, we sold our new fiber cassettes to a new customer who is building regional fiber networks.

In addition, we are working with new customers on outside planning closures for their rural broadband networks.

West Tellus outdoor cabinets fiber products and remote.

Monitoring are well suited for the rapidly growing rural broadband and Fiveg deployments.

In summary, Q3 was a large improvement over Q2 and I believe the company turnaround is on track our number one priority is to grow revenue and that is where we are focused as I said in my first call with you we are.

Developing new products for in building wireless fiber connectivity and remote monitoring and we are bringing new customers to expand westells customer base.

With that said, let me turn the call back to Jennifer.

Thank you Pam.

I will provide some key financial highlights on our quarterly results beginning with revenue.

For the third quarter fiscal 2020 ended December 31st 2019, total revenue was $7.2 million compared with $7.6 million in the quarter ended September Thirtyth 2019, as revenue decreased slightly across all three segments.

Our IBW segment.

Our highest public safety revenue today and increased revenue from commercial repeaters.

Increases were more than offset by lower revenue from das conditioners, and our system components as Tim mentioned in public safety. We received our first revenue from the new battery backup unit that was introduced during the quarter.

In the segment higher deployment services and support agreement revenue with more than offset by lower sales of remote monitoring units and optimize software also during the quarter the balance of deferred revenue increased as we completed the annual renewal for some larger service agreements.

For the CNS segment.

Creased revenue from fiber connectivity connection solutions and integrated cabinets with more than offset by lower revenue across the remainder of the segment.

Looking at the rest of the operating results.

Validated gross margin was 38.8% in Q3 up from 20.9% in Q.

Two when a significant charge of $1.3 million for excess and obsolete inventory depress gross margin there were no significant and our targets in Q3.

GAAP operating expenses were $4.4 million in Q3 down from $5.3 million in Q2, primarily as a result.

Of the restructuring, we announced last quarter and the cost save and other cost saving measures.

On a non-GAAP basis operating expenses in Q3 were $3.7 million down from $4.8 million in Q2 near term, we expect non-GAAP operating.

Wanted to be in the range of $3.8 million to $4.2 million.

GAAP net loss in Q3 was $1.5 million or 10 cents per share an improvement from a one from a $3.6 million net loss or 23 cents per share in Q2.

Non-GAAP net loss in Q3 improved to 850000.

Or five cents per share.

Compared to a loss of $3.1 million or 20 cents per share in Q2.

Turning to the balance sheet.

On December 30, Onest 2019, our cash totaled 22 million.

Million dollars.

From $21.7 million at September Thirtyth.

The 300000 dollar increase in cash during the quarter was driven by managing expenses and improved working capital.

Looking forward you should note that we expect to pay the second $1 million associated.

With our public safety licensing agreement this quarter, assuming all conditions are met.

At this time.

We open the call to your question.

Thank you we will now begin the question and answer session. If you have a question. Please press Star then one and you touched on Paul.

If you wish to be remote MCU. Please press the pound side or the Heskey.

Once again I'd be happy question. Please press Star then one and you touched Tom.

And our first question comes from Johnson alter capital.

Hey, guys.

Jim just a question about whether the board has.

Reconsidered a buyback given there is some signs of its around and also you guys are still.

20% below below cash.

No that any thoughts there.

Yes.

This is Johnny Thank you for your question.

As as we've mentioned in the past any type of buyback program is really a board decision.

Hello.

Well the management team believes were in a position to turn the company around and feel.

That we'd like.

To continue to.

Grow the company and turning around.

It really as a board decision so.

Thank you Hi, Matt Thats, why I asked whether the board has considered a buyback.

We have considered this is Tim John Weve can the board has considered all options to increase shareholder value and that's that's one other things we're talking about.

Okay, great. Thanks.

Our following question comes from Harry Sawyers, I'm, sorry, This family office.

Yes, Thanks for the earnings call first I want to congratulate you on the strong quarter.

That actually was one of my questions regarding the buyback.

Plus.

And that in any case can you provide any guidance the cash burn going forward beyond sometime in fiscal 2021.

Yes Harry.

Cash.

Going into next quarter cash will be affected by a few things Jennifer mentioned 1 million.

Our licensing payment.

That may go out this quarter.

We will also have prototyping and product demonstration.

Expenses during the quarter.

That may increase our cash burn a little bit but these are investments that are good and grow the business and should lead to new revenues down the road.

Thank you.

And would you free described for me, what's your view as Wesco strongest competitive advantage.

I think.

Our.

Biggest competitive advantage and the way that weve changed over the last bonds is getting very close to our customers and understanding their needs.

Leads and then rapidly pulling together solutions that meet their full needs.

So for example in public safety, we're working on ways to make it very easy to install those products and carry all the products that in installer would need and do their designs for them. So we become at very easy custom company to do business.

This way.

Right.

And of course looking at the quarter on quarter gross margin increases across all of your business lines.

But took me by surprise when I read your press release yesterday, what do you attribute to that.

Most of that comes from the at all expense.

We took last quarter.

We did have a significant expense of $1.3 million last quarter and that was across all the product lines.

So thats the quarter over quarter difference.

Do you view this as your one improvements.

Hi, yes.

We are definitely watching our margins going forward.

Hi, Thanks, that's all.

Okay.

Exactly.

Following question comes from Steve Byrne from Everglades precise nets.

Hi, Tim Jennifer Thanks for taking my call.

So I mean.

I am amazed that anyone thinks that exceeding seven 7.2 million was exceeding expectations and.

I think what expectations.

We're.

I, just don't see how going down in revenues exceeding expectations. So.

My question really revolves around.

You got this employee base year in a highly competitive field.

What's going to attract and retain employees. When you said 15 years or stock diary destruction in can't really pay them and options because our options are worth.

Well I bet.

That's a log question Steve.

We have a good we already have a good team here I think it's just been an issue of focusing and focusing on the right products and working with our end customers in the right way to grow revenue.

And earlier comments about.

Expectations that had more to do with our bottom line non-GAAP results and our expense reductions obviously going forward, we need to focus on growing our profitable revenue.

Okay, well, so I guess I mean, it's not toward you, but we've heard the same store or how many ceos.

Now for 15 years. So the question becomes the board considers all its options were trading.

Well below.

Cash per share right with no debt, we're not buying back stock which is whatever.

I don't just right move but.

The question is has the board consider just.

Resigning and letting someone else comes in those what they're doing because you know, let's killing the rest of the board have done absolutely nothing.

15 years accept drive the stock 200 dollar.

It makes no sense. So I don't think the board considers lending outcomes I really don't think there is a board and if hours employees.

I'd be considering.

Some sort of walk out until aboard designs are merged the two classes.

So what LT more conservatism.

Hey, let's get back to your question, which is the board is big is investing all ways to increase shareholder value and the management team here are number one priority is to grow revenue and that's.

Thats obvious at this point, we've we've limited our expenses, we need to grow revenue.

But we would hearing that for 10 10, plus years I don't understand what's changed or what happened in the past Steve I can only talk about what we're doing going forward.

What are your top estimate for what you think revenues could be within the next year.

We were not making we're obviously focused on growing the company, but we're not giving a forward outlook on revenue.

Okay, all right so I.

I hope you do well, but I'm, telling you that the board needs to go and Thats My statement. Thank you happy to.

Okay. Thank you Steve.

Following question comes from Mark So.

Suck investment advisors.

Hi, Tim Thanks for taking my question.

I want to see.

Yes, it's funny Steve My first question was when you said exceeding expectations I, just was and even though what your expectations.

I would have looked like but let's move on the two first guys I want to talk about the share buyback.

Normally when the stock trading below cash I would be on board with that.

I, just think that people like to realize that you have burned cash for a long time.

When you're dealing with.

But that.

Mark when you.

And then let me give everybody's time can we talk about question, yes, well. This is a very important question because they.

They talked about share buyback and I just want to say that.

You should not be buying back shares because cash is one of your most biggest assets right now so tell me clarify so.

We've done it should even be brush. Okay. So would you say the expectations of getting to profitability is based on the growth of your Fiveg business.

We are actually focusing on three areas Fiveg is one of our growth areas and that would be fiber and cabinets are both going into fiveg, along with integrated site monitoring.

We obviously need.

Growth across the board.

To increase our revenues and we got.

Public safety too.

Right right public safety does well you still need the Fiveg considering you just said two or three business businesses are focused on okay.

All three okay.

I'd love to see all three move up.

Without a doubt if two or three you're focused on fiveg than you would would the answer be asset.

Ill.

At the profitability, it's really based on the growth to Fiveg business and I understand the.

It's actually not just fiveg Mark yes, part of its Fiveg, but also in that same area. There is a lot of rural broadband going and right now, okay, there and they're talking about expanding another $20 billion.

And spend there so it's in that isn't necessarily fiveg Thats also wireless radios going in to deliver rural broadband and fiber. So thats a whole another area that we could grow into.

Okay, because what.

And I appreciate that because I've been with a few conference calls I'd like to see all of Ericsson.

Basically saying how.

And Fiveg is actually slowing down in many countries seal Xilinx and the conference call basically is laying off people because they are seeing fiveg slowdown in many areas.

So I just wanted to so yes, we think even a fiveg is not taking up as much as possible you think broadband is.

Something that.

I'm just trying to understand that profitability that you could still do well, even if that's not the case because of the broadband could take over the Fiveg is address that makes enroll broadband delivery theres portions of the country with.

Core broadband and delivering rural broadband to those people is very important.

And then in addition public safety.

Going to grow.

Okay. That's that's that clarifies that question and then last thing not yet so basically Tim I'm sure you understand as a public Tracy I'll now for two quarters. I think you would agree that the movement of the stock is based on supply and demand and what.

Yes profitability correct.

Yes, we are focused on profitable revenue growth right right. So just one thing and I just think thats the problem is.

The stock appreciation will be muted because we'll keep investor demand suppressed and this is because I have talked a lot of people that I've tried to get into.

Westell is the dual class stock. So that's a majority voting block has historically has not had the best interest to shareholders. Because all you have to do is look back at the filings in August 2016, Yeah is that every phase in the form of a question. Yes, yes, I think that I think the I think what you need to do.

Chemistry, we talked to the board and figure out away that to work through the dual class a shares because what happens is it's keeping people out of the stock. So you could be profitable, but there's still a lot of people that are going to look in the past history and say listen the sports not doing there yet did fiduciary must fill it if it's important I am not fashion the board I mean, what's done as Don I mean.

Coping was.

It was on jar, but it affects the stock price and I hope that some you can figure out some way to make this happened because if one person is controlling the votes.

Fair and then what's I've got to turn this into a form of a question. Please okay. Okay can we will not to be end up can afford to show us a plant I hit the question.

Ken The board show US a plan to basically move the stock from dual class to single class. If you adjust phase I dose or are these guys. That's one thing, but the stock is really underperformed and it would be it would show it would show good faith to the shareholders and probably get more people interested in the stock. So the question is Ken the board devise a plan that can.

So that they're planning on making this at one 100 in stock, yes, or no marked a board continues to review all the option, Okay, and we'll take that under consideration Im just trying to have stock go up as you did okay. Thank you Tim good luck.

You Mark.

Our next question comes from Mark Spiegel.

Im Stanphyl capital.

Hi, before I ask my question I'll, just say one sentence that I echo.

Mark So just said we have about 4.9% of the company ourselves and.

There's no way in Hell, a lot of people will bite us no matter how good your performances, if theres that dual class stock out there.

So the disguise the chairman Mr. shooting himself in the fourth with this kind of stupidity.

Okay ill move onto micro before I do my question, Yes Trump.

Earlier. This week said he is going to spend $20 billion on rural digital opportunity fund and the Democrats actually stood up and applauded DAC, which tells me it's going to.

Thats gone so hopefully you guys.

So you guys can you make some money there my question how much if any of your supply chain goes through China, and how could this affect you.

We are investigating that right now it's it's a small part of our businesses.

Effect, probably less than 10.

What percent of our business right now.

We are closely watching the spread of the current a virus. We did talk to our factories that are there and currently they are saying they're going to open next week, which is only a week later than Chinese new year, when they were going to open.

If they opened next week, we think we'll hit.

About a one to three week delay in shipments so those parts.

It's a developing things so it may change so as a contingency plan, we're quoting us suppliers for those parts if the if that situation in China continues and the plants are closed, but I think we'll make it up during the quarter if they ship.

For the next one to three weeks.

Okay. So there's nothing that you get from China that you can't get elsewhere.

The the main thing we're looking at right now as cabinets.

I will say I don't know what other ramifications that might have.

There might be some.

What's that we haven't even heard of yet that we can't get but thats. The main thing that we've heard about.

And quite true for a lot of companies.

Okay foreign thank you very much.

Thank you.

No further questions.

Okay.

Thank you for joining us today.

As I mentioned previously we are working hard to turn the business around and drive up shareholder value topline profitable revenue growth is our highest priority with our focus on developing new public safety fiber connectivity and remote monitoring products.

In addition, we are targeting new customers.

Mers, particularly in the IBW and I assume product areas.

We also will continue to manage our expenses, while strategically investing in the most promising new product areas. We look forward to speaking with you again.

Thank you ladies and gentlemen does concludes today's conference. Thank you for participating you may.

Now disconnect.

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