Q4 2020 Westell Technologies Inc Earnings Call
Welcome to the West Tellus fiscal year, 2024th quarter earnings call. My name is Richard and I'll be your operator for today's call. At this time all participants are in listen only mode. Later, we'll conduct a question and answer session. During the question answer session. If you have a question. Please press Star then one on your Touchtone phone.
Please note that this conference is being recorded.
Now turn the call America, Jennifer James West Tellus interim Chief Financial Officer, Jennifer you may begin.
Thank you Richard Good morning, and welcome to our conference call to discuss the fiscal year 2024th quarter results for Westell technologies.
A news release, we issued yesterday afternoon, it posted on our website Westell Dot com.
Our next call Appendix men, Westhouse, President and Chief Executive Officer, well begin with a discussion of our business and growth initiatives.
I will then update you on our financial results for the corridor and we'll conclude by taking your question.
Before we began.
Please note that our presentation on discussion contain forward looking statements about future results performance or achievements financial and otherwise.
Words, such as should believe expect trend and similar expressions are intended to identify such forward looking statements.
These statements 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 those Scott.
A description of factors that may affect our future results is provided in the company FTC filings, including form 10-K for the fiscal year end March 31st 29 team under the section risk factor.
The forward looking statements made in this presentation are being made adds up to date and time at this conference call Westell 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, because we believe that non-GAAP measures.
By meaningful supplemental information to both management and investors.
The non-GAAP information reflects the company's core ongoing operating performance and facilitate comparisons across reporting periods.
Our discussion of results today will include non-GAAP financial measures.
We provided reconciliations to the most comparable GAAP measures in our news release I will now turn the call over to pair. Thank you Jennifer and good morning, everyone.
And our call. This morning, I will give you an update on our business, including the impacts of Cobot 19, which began during our fourth quarter Wesco is an essential business and our operations remained up and running during the state wide stay at home orders, resulting from covered 19. The situation is clearly affecting our customers answer.
Suppliers and it has made many things challenging for our own operations.
Safety is our first priority for everyone, we've implemented CDC and stay guidelines for mitigation and prevention in our facilities, including social distancing frequent cleanings masks temperature checks and other actions to help keep our employee safe and healthy our sales force and office staff employees are working remotely.
However possible.
I'm thankful for the resilience of the Westell team as we navigate these uncharted waters.
The pandemic affected westells business and two primary ways during the fourth quarter average daily orders dropped in March likely due to a combination of the recently adopted stay at home orders and the economic uncertainty that is affecting everyone.
We also experienced delayed deliveries from our suppliers due to covert related factory shutdowns and piece parts supply chain interruption.
Customer orders that were affected by these delays and most part we're not canceled the deliveries were shifted out often into the following quarter.
These colbert related issues reduced our fourth quarter revenue and its profit contribution they were the major reasons for our revenue ending approximately $1 million below the previous quarter.
We proactively dealt with these issues from the start.
When we first experience supply chain issues, our operations group formed a crisis team define and qualify alternate suppliers, we've temporary temporarily source some products in the us at higher costs and air ships and critical parts from Asia, We were able to pass some of these additional costs along to customers, but we expect some related mom.
Surgeon compression in the next few quarters due to higher costs.
Finally, we also responded by taking action to reduce our costs are higher paid employees took a 20% pay cut for seven weeks, our board of directors reduce their care cash compensation for this new fiscal year by 26%.
We also clamp down substantially on other expenses.
Based on our shipments and orders scheduled to ship, we expect revenue this quarter to be similar to last quarter. It is difficult to forecast beyond the current quarter in this uncertain and rapidly changing business environment.
I also want to note one other positive development during the current quarter Wesco received a PPP loan for $1.6 million on April 14 that helped us sustain our workforce and keep our employees working.
This loan is being used to cover payroll utilities and rack.
The company expects to apply for loan forgiveness against the applicable expenses.
Jennifer will be reviewing our financial results in a moment. So at this time I would like to share the actions Westell is taking towards our number one priority, which is profitable revenue growth.
We continue to drive our revenue expansion strategy and three key markets in building wireless remote monitoring and rural broadband deployment I will touch on a few of our specific efforts.
Our IBW segment public safety as a key opportunity and focus for Wesco shipments a class B repeaters and battery backup units were strong during the quarter class a repeaters were down versus last quarter as customer orders and installations of these systems were delayed due to the pandemic.
We also experienced strong demand for ancillary dads components connected with public safety and we expect that to continue.
Looking forward, new public safety products or in development for introduction later this fiscal year.
There is good news on the sales channel front for public safety in February Westell signed an exclusive nationwide agreement with Johnson controls a worldwide leader in building control systems, Johnson controls will be distributing and specifying westell public safety products throughout there.
Direct and indirect channels.
Our agreement covers all Johnson controls company owned offices that offer simplex fire alarm systems as well as their auto called dealer channel members.
Wesco has already trained many of Johnson controls technical field engineering and training support teams and more than 100 auto call dealers nationwide.
We have started designing public safety systems public safety systems for new buildings with their staff, having a quality partner like Johnson controls should help to place more of these important public safety systems and buildings throughout the United States.
In addition, I am pleased to announce we have a new product line in the IBW portfolio named Crossfire.
Last year, we signed a sales agreement for a digital das platform, which deliver cellular and Wi Fi coverage inside buildings. This technology has been deployed throughout the world, particularly in Asia, Australia, Canada and the UK.
Our in building wireless experience consulting with customers and selling dads components makes this product that great fit for the Westell IBW sales team.
Many of our cellular and public safety integration partners can also sell and install this new digital das platform.
We received our first customer orders last quarter, and we shipped our first two crossfire systems the customers in May.
In our I assume business, we saw a drop in demand for remote devices and installations during the fourth quarter likely due to the stay at home orders Installers were asked to stay at home and did not travel the sites to install new equipment during that quarter.
During the quarter, we made significant development progress on prototypes and software for our new lower costs remote monitoring platform, which has named edge link.
We also started business development and marketing of this new product customers are excited about the ability to deploy our low cost solution for energy management industrial Aiotv networks and broad band radio monitoring.
Customer field trials are currently planned to begin late this summer.
Coated may have increased the demand for this product since customers are looking for new ways to remotely monitor and control locations.
This low cost product and associated monitoring can improve their efficiency and reduce the number of maintenance truck rolls.
I'd also like to highlight one other positive development in ISO.
We recently hired a new VP of ISS sales and business development, who is now responsible for the entire I SM sales team.
This person has extensive experience in the ROE remote monitoring industry and is known and respected by our customers.
In our CNS business power and network connectivity products had a solid quarter and that revenue can be attributed to a mix of applications markets and customers.
Overall broadband using Crs fiveg wireline and other fixed wireless services continue to drive demand for network infrastructure and we continue to create solutions that help our customers.
We entered the new fiscal year with a backlog of integrated cabinet orders for rural broadband customers.
We also recently added to rural broadband customers.
Sales product management and engineering teams worked closely with these new customers to model. There cabinet designs. Both cabinets were approved by the customers. We've already shipped the first production cabinets to one customer and the other customers cabinets will ship next month.
In summary, Q4 was a difficult quarter due to the pandemic, although it may be delayed I believe the company turnaround is in process. Our number one priority is to grow profitable revenue and that is where we're focused as such we are developing new products for in building wireless role broadband deployment.
And intelligent site monitoring and bringing on new customers to expand Westhouse customer base with that said, let me now turn the call back to Jennifer.
Thank you Tim.
I will provide some key financial highlights on our quarterly results beginning with revenue.
For the fourth quarter fiscal 2020 ended March 31st 2020, total revenue was $6.2 million compared with $7.2 million in the quarter ended December 30, Onest 2019.
As lower I have some and IBW segment revenue was partially offset by increased revenue from our CNS segment.
Our IBW segment produced our highest public safety class B revenue since the quarter ended June Thirtyth 28 team and our largest quarter of battery backup unit sales to date.
Increases were more than offset by lower revenue from active and passive das conditioners and RF system components.
In the I guess some segment revenue decreased across all product lines with primary with the primary decline driven by lower sales of remote unit.
Increased revenue in the Cnf segment was driven by higher sales of product distribution network connectivity products, partially offset by lower sales of fiber access solutions and integrated cabinets, which were delayed due to covert related supply chain challenges.
Looking at the rest of the operating results.
Solid dated gross margin was 32.8% in Q4 compared with 38.8 in Q3.
The margin decline was primarily driven by a vendor purchase order cancellation fee.
Higher consumable and period costs and fixed cost allocated over lower revenue during the quarter.
There were no significant charges in Q4.
As Tim mentioned to support our customers during the pandemic, we're sourcing higher cost materials from alternative sources and incurring expediting fees.
All of which may not be passed along to our customers.
These actions are expected to compress gross margin in the near term.
GAAP operating expenses were $4.9 million in the fourth quarter, which included a 1 million dollar noncash impairment charge for an IBW intangible assets related to product licensing rights for a specific class a public SEC for specific class a public safety products compared to 4.4.
<unk> million dollars in the third quarter.
The noncash impairment, which triggered by uncertainties due to site access limitations and delayed project planning and approval due to cover the potential deferral of revenues within a fix to license period created impaired value.
Well the assets was impaired we remain excited about our ability to grow in this space and are fully committed to pursuing these public safety opportunities.
Which we believe how the significant long term potential for west Tom.
On a non-GAAP basis operating expenses in the fourth quarter were $3.5 million down from $3.7 million in the previous quarter.
The decrease was primarily a result of having a full quarter of the benefits from our third quarter restructuring.
Near term, we expect non-GAAP operating expenses to be in the range of 3.4 million to $3.7 million per quarter. We believe next quarter result will be towards the lower end of that range.
GAAP net loss in the fourth quarter was $2.8 million for 18 cents per share compared to a net loss of $1.5 million or 10 cents per share in the third quarter.
Non-GAAP net loss in the fourth quarter was $1.3 million or nine cents per share compared with $850000 or five cents per share loss in the third quarter.
Turning to the balance sheet.
On March 31st 2020, our cash totaled $20.9 million compared with $22 million at December 31, 2019.
The $1.1 million decrease in cash during the quarter was primarily driven by the net loss and the payment of $700000 that Wasnt accounts payable at December 31 to 2019 in connection with the license agreements.
This time, we will open the call for your question.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound sign or the hash key if you're using a speaker phone you may need to pick up the handset first before addressing the numbers. Once again, if you have a question. Please press.
Star then one on your Touchtone phone and we're standing by for questions.
And our first question on line comes from Mr., Marc Silk from Silk investment Advisors. Please go ahead.
Thanks for taking my questions to another quick one.
Tim you didn't really discuss about your.
You talked about getting the profitability in the second half fiscal 2021 is that still on table.
Morning, Mark Thanks for asking.
I've got to say this right now we're not sure.
Im not sure how 2020 will play out.
Theres a lot of talk about.
Second round of the pandemic and so on.
We're working as hard as we can add to watch our expenses and gross sales. There is some bright areas that the public safety.
Crossfire platform edge link and rural broadband expansions that are bright areas for potential new growth.
But we also are concerned about our supply chain, we've had some delays in the supply chain. So net net I really can't project. The rest of the year, we're just trying to figure that out right now.
And just to follow up so when you. When you were hired obviously there was to grow the revenue figure out what products work and.
Get the profitability and since it's been a revolving door Ceos. When you were hired with something that says.
Get the profitability.
Whenever decline.
But if it doesn't happen under your watch is it a situation where you feel to you bring another CEO or it's like.
We should we should definitely to figure out what to do with the company as far as head of Investor back. It's as opposed to hopefully you stay there and you get the profitability, but I'm, just saying I think as a shareholder we need to kind of note is an end game meeting.
Sustained profitability, which is great, but if it's not to say profitability I think it's fair to the shareholders that we know that if what you're doing doesn't work out at a lease we know that helped our investment can be salvage because it's been very painful and as you know we're going to go through another reverse stock split which is the second time in full year. So I would love your comments on that.
And we'll talk more market, there's no specific agreement.
The executive team and myself are all focused on getting this company to profitability growing our revenue and getting it to profitability because that will solve a lot of problems.
All right, we'll talk offline. Thank you.
Thanks Mark.
Thank you again for any questions or follow ups that started in one on your touched on phone. Our next question on line comes from Mr., Harry Sellers from sellers value. Please go ahead.
Hi, Tim I really appreciate you taking my questions today.
Good morning here.
Yes, let's get started.
How aggressive would you say that you've been in cutting any kind of discretionary costs this quarter.
Why is it discretionary costs, we've we've really cut back we've also seen obviously due to the pandemic we've seen.
Travel and entertainment down.
I'm not I'm not sure whether that's a good thing or not because it's difficult to get in front of customers, but customers have been accommodating theres been an awful lot of zoom calls going on back and forth and and a lot of telephone calls.
But anything that we absolutely don't need we have not spend money on.
Okay, and I'm, a little curious about the PPP loan do you anticipate that will be for given in its entirety.
You know.
We obviously hope so the rules have been changing I don't know if you've seen how many interim rules. They published on this thing.
We plan on applying for forgiveness and following the process.
And we'll see how the rules and up so I can't promise it, but obviously, we will apply for forgiveness.
Okay.
We've seen the I mean, obviously the revenues have been collapsing this quarter.
Our us flexibility with suppliers equipment financing any of that.
What does it look like on that for us.
As far as are the suppliers that we have.
We've been working hard on getting our inventory turns up and our suppliers have been working with us on that to try to reduce our inventory and you'll see that our inventory is coming down.
We also have looked at setting up a consignment agreement so that we can.
Reduce our costs, but.
So far it's mostly better focus on inventory turns.
Right well of course.
I think we would all love to see a higher rates of inventory turnover here.
I mean, I don't need distressed at Wesco is small do you believe that it has the ability to compete with others in its current state.
Yes, yes, I do.
Why leave that because we are close to the customers and we've got good relationships. We can react quickly to give them a custom product when they need it some of the larger customers are larger companies don't react quite as quickly. So our engineers end up working directly with the customers developing a product.
Exactly for what they need and they appreciate that.
So and we can go after a large company may not want to go after anything less than.
A couple of million dollars and our company.
500000 dollar opportunity, that's a significant opportunity that could grow in the future.
So.
And then the Johnson controls agreement is is a big agreement for us that gives us leverage.
Across the us with all the new partners.
You can you speak to any of the numbers behind that agreements.
No it's too early.
The systems that we've been designing or going into new buildings. So it's it's just started so we're going to see how that matures, but it's looking very promising I will say that.
Okay and can you comment on what you're doing differently as a CEO.
Compared to your predecessors twos.
I mean, obviously you do have strong background in this in your brought on to grow revenue and do so profitably.
But.
Obviously with the Cobot thing, we're not seeing a whole lot of revenue growth.
The covered I think was a setback and I don't know how long has setback many of our customers weren't ordering and we're at homes are you really can't comment what's different about the previous Ceos I just know that the executive team now is working as a team we're focused on a very clear strategy and the.
The three areas of growth that we're working on so.
And I think we've got a new focus on.
Expenses watching our expenses and getting those new products to market and working with customers directly.
What do you mean by working with customers directly.
Actually.
While we are developing the products.
Having a customer sponsor and doesn't working with them on their needs.
So.
But in the past some of the products were developed.
Mostly internally and then they would go to market with it.
On the products that were doing today like Adulate, we're actually working with a customer sponsor right now and developing exactly what they need.
So that puts us in a lot better.
Position when the customer when the product comes out.
And what exactly is entailed in being a customer sponsor.
There is no there's no dollars, it's more they have a need that they need solved and we haven't product that can do it and we work with them deliver the prototypes for exactly what they need will do a field trial with those prototypes and prove that it works and then they've agreed that if it works they have interest in it long term.
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But they just agree that they have interest in it long term, they're not necessarily.
They're not necessarily bound to anything you are not guaranteed to help you develop retailer a feature or something to that effect.
There is it occasionally and Ari.
But most of the time. It is just they have a very urgent need they need defects and we work with them to fix that need.
Okay. Thank you Thats definitely clear set up for me.
All right looking at this past quarter and the past really no sense, even know who westell was.
I had been afraid that we are we're only looking at our current rate of cash burn of about 1 million a quarter.
Everyone here is going to be out of a job at about five years. If we don't seriously look at some strategic alternatives, if our growth initiatives fail.
So my question is what strategic alternatives revenue in the board taken a serious look out over the past quarter.
I.
I really cant share that.
The board, obviously has talked about strategic alternatives, but no decisions have been made and we can't share that as soon as decisions are made we would share them.
Alright.
I mean I think.
My take on that is I voice that before I think.
Selling at least a part of Westell would.
Lets you extend that cash runway extend that profitability and.
I think we've got to fix the dual class share structure.
And that would keep west still in line with Clint pennies original vision.
Is that something that management at all would be interested in facilitating is maybe a buyouts of about dual class.
I the dual class of spend there are a long time.
And since we went public I think our problem or the thing we need to really focus on.
Is developing a profitable company growing our revenue watching our expenses and coming out with these new products to grow the company I really think that will fix our problems more than any.
Changes in our structure.
Thank you. Our next question on line comes from Mr., Steve Bush from Everglades Resources. Please go ahead.
Good morning, Thank you for taking my call.
Hi, guys, you say that last comment I wasn't going to comment on the dual class structure, because it's pointless.
It's good politics, we receive the when it's all up to the pennies there is no.
Logical reason have two classes at this point in the stock has been destroyed so that should be clear, but I'll move on the.
You said in your earnings and ill talk that.
Sales were down this quarter and you made up mostly pushed to the next quarter. But then you just so the quarter were is going to be the same so how does that square, yes, we're still seeing some push into next quarter Theres only a couple of weeks left in this quarter and for example, cabinets we have over.
Backlog.
It's been.
It's been difficult through the supply chain to get enough of the cabinets that we need.
So there are some some of the business that has moved from.
This quarter ended next.
So and we've also got some in some of the other product categories. It's just it's interesting that every couple of weeks, we get a new supply chain.
Surprise, so we had a plant that was giving us product out of Mexico and they call. This up and said Hey, we had to close the plant for two weeks, because we had a big infection in the plan. So we're shutting down for two weeks and sorry will get your parts. After that so it's been a challenging quarter due to the pandemic.
Right so.
Fair enough I mean, you can't you're not in charge of dependent we like what you say like your honestly about not knowing what the future holes probably first for Westell.
This question regarding the board, where does the board get paid.
The new salary is 20000 and then there is an equity component.
And I would just on that point, it's good to save costs.
The stock is going nowhere.
10 years.
The board has gone through multiple Ceos I would say the board should get really paid zero until we regain some.
Posts go next reverse split.
Hi over the last five years or something that's my opinion, good luck and Stacey.
All right. Thank you.
Thank you again for any questions on the line that started in one on your Touchtone phone.
Our next question line comes from Mr. Mark Spiel. Please go ahead.
Happened.
And it looks like we have no further questions. At this time do you have any closing comments.
Yes.
Well first I'd like to thank all of you for joining US today as mentioned previously driving profitable revenue growth is our highest priority that growth will come from developing new products for the in building wireless rural broadband deployment, and intelligent site monitoring market and adding new customers for those products I hope that you and your family stay healthy.
And say through this pandemic and look forward to speaking to you again.
Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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